CALCULATION
OF REGISTRATION FEE
|
|
Maximum Aggregate
|
|
Amount of Registration
|
Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
Contingent Income Securities due 2019
|
|
$1,105,000
|
|
$111.27
|
July 2016
Pricing Supplement
No. 987
Registration
Statement Nos. 333-200365; 333-200365-12
Dated July
26, 2016
Filed pursuant
to Rule 424(b)(2)
|
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable Securities due
July 31, 2019
All Payments on the Securities Based on the Worst
Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Fully and Unconditionally
Guaranteed by Morgan Stanley
Principal at Risk Securities
The securities
are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan
Stanley. The securities have the terms described in the accompanying product supplement and prospectus, as supplemented or modified
by this document. The securities do not guarantee the repayment of principal and do not provide for the regular payment of interest.
Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing
price of
each
of the common stock of Amazon.com, Inc. and the common stock of Netflix, Inc.
, which we refer to collectively as the underlying
stocks,
is
at or above
60% of its respective initial share
price, which we refer to as the respective downside threshold level,
on
the related observation date. If, however, the determination closing price of
either underlying stock
is less than its respective
downside threshold level on any observation date, we will pay no interest for the related quarterly period. In addition, the securities
will be automatically redeemed if the determination closing
price of
each underlying stock
is
greater than or
equal to
its respective initial share price
on any quarterly redemption
determination date (beginning after six months) for the early redemption payment equal to the sum of the stated principal amount
plus the related contingent quarterly coupon. At maturity, if
the securities have not previously been redeemed and the final
share price of
each underlying stock
is
greater than or equal to
its respective downside threshold level, the payment
at maturity will also be the sum of the stated principal amount and the related contingent quarterly coupon. However, if the final
share price of
either underlying stock
is
less than
its respective downside threshold level, investors will be exposed
to the decline in the worst performing underlying stock on a 1-to-1 basis and will receive a payment at maturity that is less than
60% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must
be willing to accept the risk of losing their entire initial investment and also the risk of not receiving any contingent quarterly
coupons throughout the 3-year term of the securities.
The securities are for investors who are willing to risk their principal
and seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of receiving no quarterly
interest over the entire 3-year term and in exchange for the possibility of an automatic early redemption prior to maturity. Because
the payment of contingent quarterly coupons is based on the worst performing of the underlying stocks, the fact that the securities
are linked to two underlying stocks does not provide any asset diversification benefits and instead means that a decline of
either
underlying stock below the relevant downside threshold level will result in no contingent quarterly coupons, even if the other
underlying stock closes at or above its downside threshold level. Because all payments on the securities are based on the worst
performing of the underlying stocks, a decline beyond the respective downside threshold level of either underlying stock will result
in no contingent quarterly coupon payments and a significant loss of your investment, even if the other underlying stock has appreciated
or has not declined as much. Investors will not participate in any appreciation of either underlying stock. The securities are
notes issued as part of MSFL’s Series A Global Medium-Term Notes program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
FINAL TERMS
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying stocks:
|
Amazon.com, Inc. common stock (the “AMZN Stock”) and Netflix, Inc. common stock (the “NFLX Stock”)
|
Aggregate principal amount:
|
$1,105,000
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
|
July 26, 2016
|
Original issue date:
|
July 29, 2016 (3 business days after the pricing date)
|
Maturity date:
|
July 31, 2019
|
Early redemption:
|
The securities are not subject to automatic early redemption until
January 31, 2017. Following this initial 6-month non-call period, if, on any redemption determination date, beginning on the third
scheduled business day preceding January 31, 2017, the determination closing price of
each underlying stock
is greater than
or equal to its respective initial share price, the securities will be automatically redeemed for an early redemption payment on
the related early redemption date. No further payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early on any early redemption
date if the determination closing price of either underlying stock is below its respective initial share price on the related redemption
determination date.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the contingent quarterly coupon with respect to the related observation date.
|
Determination closing price:
|
With respect to each underlying stock, the closing price of such underlying stock on any redemption determination date or observation date (other than the final observation date),
times
the adjustment factor on such determination date or observation date, as applicable
|
Redemption determination dates:
|
Quarterly, on the third scheduled business day preceding each scheduled early redemption date, subject to postponement for non-trading days and certain market disruption events
|
Early redemption dates:
|
Starting on January 31, 2017, quarterly, on the last day of each January, April, July and October;
provided
that if any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of 16.00%
(corresponding to approximately $40 per quarter per security) will be paid on the securities on each coupon payment date
but
only if
the determination closing price of
each underlying stock
is at or above its respective downside threshold
level on the related observation date.
If, on any observation date, the determination closing price
of either underlying stock is less than its respective downside threshold level, no contingent quarterly coupon will be paid with
respect to that observation date.
It is possible that one or both underlying stocks will remain below their respective
downside threshold level(s) for extended periods of time or even throughout the entire 3-year term of the securities so that you
will receive few or no contingent quarterly coupons.
|
Downside threshold level:
|
With respect to the AMZN Stock, $441.354, which is equal to 60%
of its initial share price
With respect to the NFLX Stock, $54.846, which is equal to 60%
of its initial share price
|
Payment at maturity:
|
If the securities are not redeemed prior to maturity, investors
will receive a payment at maturity determined as follows:
·
If
the final share price of
each underlying stock
is
greater than or equal to
its respective downside threshold level:
(i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the final observation date
·
If
the final share price of
either underlying stock
is
less than
its respective downside threshold level: (i) the stated
principal amount
multiplied by
(ii) the share performance factor of the worst performing underlying stock
Under these circumstances, the payment at maturity
will be significantly less than the stated principal amount of $1,000, and will represent a loss of more than 40%, and possibly
all, of your investment.
|
|
Terms continued on the following page
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
$963.70 per security. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price
to public
(1)
|
Agent’s commissions
(2)
|
Proceeds to us
(3)
|
Per security
|
$1,000
|
$20
|
$980
|
Total
|
$1,105,000
|
$22,100
|
$1,082,900
|
|
(1)
|
The price to public for investors purchasing the securities in fee-based advisory accounts will be $985 per security.
|
|
(2)
|
Selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission
of $20 for each security they sell; provided that dealers selling to investors purchasing the securities in fee-based advisory
accounts will receive a sales commission of $5 per security. See “Supplemental information regarding plan of distribution;
conflicts of interest.” For additional information, see “Plan of Distribution (Conflicts of Interest)” in the
accompanying product supplement.
|
|
(3)
|
See “Use of proceeds and hedging” on page 27.
|
The securities involve risks not associated
with an investment in ordinary debt securities. See “Risk Factors” beginning on page 12.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement
and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Information
About the Securities” at the end of this document.
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product
Supplement for Auto-Callable Securities dated February 29, 2016
Prospectus
dated February 16, 2016
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Terms continued from previous page:
|
Initial share price:
|
With respect to the AMZN Stock, $735.59, which is its closing
price on the pricing date
With respect to the NFLX Stock, $91.41, which is its closing price
on the pricing date
|
Coupon payment dates:
|
Quarterly, on the last day of each January, April, July and October, beginning October 31, 2016;
provided
that if any such day is not a business day, that coupon payment will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day;
provided further
that the contingent quarterly coupon, if any, with respect to the final observation date shall be paid on the maturity date.
|
Observation dates:
|
The third scheduled business day preceding each scheduled coupon payment date, beginning with the October 31, 2016 coupon payment date, subject, independently in the case of each underlying stock, to postponement for non-trading days and certain market disruption events. We also refer to July 26, 2019, which is the third scheduled business day preceding the scheduled maturity date, as the final observation date.
|
Final share price:
|
With respect to each underlying stock, the closing price of such underlying stock on the final observation date
times
the adjustment factor on such date
|
Adjustment factor:
|
With respect to each underlying stock, 1.0, subject to adjustment in the event of certain corporate events affecting such underlying stock
|
Worst performing underlying stock:
|
The underlying stock with the larger percentage decrease from the respective initial share price to the respective final share price
|
Share performance factor:
|
Final share price
divided by
the initial share price
|
CUSIP / ISIN:
|
61766BBM2 /
US61766BBM28
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix,
Inc. (the “securities”) do not provide for the regular payment of interest. Instead, the securities will pay a contingent
quarterly coupon at an annual rate of 16.00%
but only if
the determination closing price of
each underlying stock
is
at or above
60% of its respective initial share price, which we refer to as the respective downside threshold level,
on the related observation date. If the determination closing price of
either underlying stock
is less than its downside
threshold level on any observation date, we will pay no coupon for the related quarterly period. It is possible that the determination
closing price of
one or both underlying stocks will remain below their respective downside threshold levels
for extended
periods of time or even throughout the entire 3-year term of the securities so that you will receive few or no contingent quarterly
coupons during the entire term of the securities.
We refer to these coupons as contingent, because there is no guarantee
that you will receive a coupon payment on any coupon payment date. Even if both underlying stocks were to be at or above their
respective downside threshold levels on some quarterly observation dates, one or both underlying stocks may fluctuate below the
respective downside threshold level(s) on others. In addition, if the securities have not been automatically called prior to maturity
and the final share price of
either underlying stock
is less than its respective downside threshold level, investors will
be exposed to the decline in the worst performing underlying stock on a 1-to-1 basis, and will receive a payment at maturity that
is less than 60% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities
must be willing to accept the risk of losing their entire initial investment and also the risk of not receiving any contingent
quarterly payments throughout the entire 3-year term of the securities.
Maturity:
|
Approximately 3 years
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of 16.00%
(corresponding to approximately $40 per quarter per security) will be paid on the securities on each coupon payment date
but
only if
the determination closing price of
each underlying stock
is at or above its respective downside threshold level
on the related observation date.
If on any observation date, the determination closing price
of either underlying stock is less than its respective downside threshold level, we will pay no coupon for the applicable quarterly
period.
|
Automatic early redemption quarterly on or after January 31, 2017:
|
Starting on January 31, 2017, if the determination closing price of
each underlying stock
is greater than or equal to their respective initial share price on any quarterly redemption determination date, beginning on the third scheduled business day preceding January 31, 2017, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date.
|
Payment at maturity:
|
If the securities have not previously been redeemed and the final
share price of
each underlying stock
is
greater than or equal to
its respective downside threshold level, the payment
at maturity will be the sum of the stated principal amount and the related contingent quarterly coupon.
If the final share price of
either underlying stock
is
less than its downside threshold level, investors will receive a payment at maturity based on the decline in the worst performing
underlying stock over the term of the securities. Under these circumstances, the payment at maturity will be less than 60% of the
stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must be willing
to accept the risk of losing their entire initial investment.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
The original issue price of each security is
$1,000. 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 pricing date is less than $1,000. We estimate that the value
of each security on the pricing date is $963.70.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
stocks. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying stocks, instruments based on the underlying stocks, 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 contingent quarterly coupon rate and the downside threshold levels, 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 terms of the securities would be
more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the
securities in the secondary market, absent changes in market conditions, including those related to the underlying stocks, may
vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our
secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction
of this type and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities
are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co.
may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
stocks, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that
those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to,
make a market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing price of
each underlying
stock
is
at or above
its respective downside threshold level on the related observation date. The securities have been
designed for investors who are willing to forgo market floating interest rates and risk the loss of principal and accept the risk
of receiving few or no coupon payments for the entire 3-year term of the securities in exchange for an opportunity to earn interest
at a potentially above-market rate if both underlying stocks close at or above their respective downside threshold levels on each
quarterly observation date, unless the securities are redeemed early. The following scenarios are for illustration purposes only
to demonstrate how the coupon and the payment at maturity (if the securities have not previously been redeemed) are calculated,
and do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be redeemed, the contingent
coupon may be payable in none of, or some but not all of, the quarterly periods during the 3-year term of the securities, and the
payment at maturity may be less than 60% of the stated principal amount of the securities and may be zero.
Scenario 1: The securities are redeemed prior to maturity
|
This scenario assumes
that, prior to early redemption, both underlying stocks close at or above their respective downside threshold levels on
some quarterly observation dates, but one or both underlying stocks close below the respective downside threshold level(s)
on the others. Investors receive the contingent quarterly coupon for the quarterly periods for which the determination
closing prices of both underlying stocks are at or above their respective downside threshold levels on the related observation
date, but not for the quarterly periods for which the determination closing price(s) of one or both underlying stocks
are below the respective downside threshold level(s) on the related observation date.
When both underlying stocks
close at or above their respective initial share prices on a quarterly redemption determination date (beginning after
six months), the securities will be automatically redeemed for the stated principal amount
plus
the contingent
quarterly coupon with respect to the related observation date.
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside
threshold levels on some quarterly observation dates, but one of both underlying stocks close below the respective downside
threshold level(s) on the others, and at least one of the underlying stocks closes below its initial share price on every
quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive
the contingent quarterly coupon for the quarterly periods for which the determination closing prices of both underlying stocks
are at or above their respective downside threshold levels on the related observation date, but not for the quarterly periods
for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold
level(s) on the related observation date. On the final observation date, both underlying stocks close at or above
their respective downside threshold levels. At maturity, in addition to the contingent quarterly coupon with respect
to the final observation date, investors will receive the stated principal amount.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside
threshold levels on some quarterly observation dates, but one or both underlying stocks close below the respective downside
threshold level(s) on the others, and at least one of the underlying stocks closes below its initial share prices on every
quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive
the contingent quarterly coupon for the quarterly periods for which the determination closing prices of both underlying stocks
are greater than or equal to their respective downside threshold levels on the related observation date, but not for the quarterly
periods for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold
level(s) on the related observation date. On the final observation date, one or both underlying stocks close below
the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal
amount multiplied by the share performance factor of the worst performing underlying stock. Under these circumstances,
the payment at maturity will be less than 60% of the stated principal amount and could be zero. No coupon will
be paid at maturity in this scenario.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing prices on each quarterly observation date, (2) the determination closing
prices on each quarterly redemption determination date and (3) the final share prices. Please see “Hypothetical Examples”
below for an illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons
(Beginning on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Starting
on January 31, 2017)
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
For more information about the payout upon
an early redemption or at maturity in different hypothetical scenarios, see “Hypothetical Examples” below.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity,
if any, assuming the securities are not redeemed prior to maturity. The following examples are for illustrative purposes only.
Whether you receive a contingent quarterly coupon will be determined by reference to the determination closing price of each underlying
stock on each quarterly observation date, and the amount you will receive at maturity, if any, will be determined by reference
to the final share price of each underlying stock on the final observation date. The actual initial share price and downside threshold
level for each underlying stock are set forth on the cover of this document. All payments on the securities, if any, are subject
to our credit risk. The below examples are based on the following terms:
Hypothetical Contingent Quarterly Coupon:
|
|
16.00% per annum (corresponding to approximately $40 per quarter
per security)
1
With respect to each coupon payment date, a contingent quarterly
coupon is paid but only if the determination closing price of each underlying stock is at or above its respective downside threshold
level on the related observation date.
|
Payment at Maturity (if the securities are not redeemed prior to maturity):
|
|
If the final share price of
each
underlying stock is
greater
than or equal to
its respective downside threshold level: the stated principal amount and the contingent quarterly coupon with
respect to the final observation date
If the final share price of
either
underlying stock is
less than
its respective downside threshold level: (i) the stated principal amount
multiplied by
(ii) the share performance
factor of the worst performing underlying stock
|
Stated Principal Amount:
|
|
$1,000
|
Hypothetical Initial Share Price:
|
|
With respect to the AMZN Stock: $700.00
With respect to the NFLX Stock: $100.00
|
Hypothetical Downside Threshold Level:
|
|
With respect to the AMZN Stock: $420.00, which is 60% of its
hypothetical initial share price
With respect to the NFLX Stock: $60.00, which is 60% of its hypothetical
initial share price
|
1
The actual contingent quarterly coupon will be an amount determined by the calculation agent based on the number of days in the
applicable payment period, calculated on a 30/360 day count basis. The hypothetical contingent quarterly coupon of $40 is used
in these examples for ease of analysis.
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date:
|
Determination Closing Price
|
Hypothetical Contingent Quarterly Coupon
|
|
AMZN Stock
|
NFLX Stock
|
|
Hypothetical Observation Date 1
|
$800.00 (
at or above
its
downside threshold level)
|
$80.00 (
at or above
its
downside threshold level)
|
$40
|
Hypothetical Observation Date 2
|
$400.00 (
below
its
downside threshold level)
|
$75.00 (
at or above
its
downside threshold level)
|
$0
|
Hypothetical Observation Date 3
|
$560.00 (
at or above
its
downside threshold level)
|
$45.00 (
below
its
downside threshold level)
|
$0
|
Hypothetical Observation Date 4
|
$350.00 (
below
its
downside threshold level)
|
$30.00 (
below
its
downside threshold level)
|
$0
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
On hypothetical observation date 1, both the AMZN Stock and NFLX
Stock close at or above their respective downside threshold levels. Therefore, a hypothetical contingent quarterly coupon of $40
is paid on the relevant coupon payment date.
On each of hypothetical observation dates 2 and 3, one underlying
stock closes at or above its downside threshold level but the other underlying stock closes below its downside threshold level.
Therefore, no contingent quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 4, each underlying stock closes
below its respective downside threshold level and accordingly no contingent quarterly coupon is paid on the relevant coupon payment
date.
You will not receive a contingent quarterly coupon on any
coupon payment date if the determination closing price of either underlying stock is below its respective downside threshold level
on the related observation date.
How to calculate the payment at maturity:
In the following examples, one or both underlying stocks close
below the respective initial share price(s) on each redemption determination date, and, consequently, the securities are not automatically
redeemed prior to, and remain outstanding until, maturity.
|
Final Share Price
|
Payment at Maturity
|
|
AMZN Stock
|
NFLX Stock
|
|
Example 1:
|
$750.00 (
at or above
its
downside threshold level)
|
$80.00 (
at or above
its
downside threshold level)
|
$1,040 (the stated principal amount
plus
the contingent quarterly coupon with respect to the final observation date)
|
Example 2:
|
$280.00 (
below
its
downside threshold level)
|
$110.00 (
at or above
its
initial share price)
|
$1,000 x share performance factor of the worst performing underlying stock = $1,000 x ($280.00 / $700.00) = $400.00
|
Example 3:
|
$550.00 (
at or above
its
downside threshold level)
|
$40.00 (
below
its
downside threshold level)
|
$1,000 x ($40.00 / $100.00) = $400.00
|
Example 4:
|
$280.00 (
below
its
downside threshold level)
|
$35.00 (
below
its
downside threshold level)
|
$1,000 x ($35.00 / $100.00) = $350.00
|
Example 5:
|
$210.00 (
below
its
downside threshold level)
|
$35.00 (
below
its
downside threshold level)
|
$1,000 x ($210.00 / $700.00 = $300.00
|
In example 1, the final share prices of both the AMZN Stock and
NFLX Stock are at or above their respective downside threshold levels. Therefore, investors receive at maturity the stated principal
amount of the securities and the hypothetical contingent quarterly coupon with respect to the final observation date.
In example 2, the final share price of one underlying stock is
above its initial share price, but the final share price of the other underlying stock is below its downside threshold level. Therefore,
investors are exposed to the downside performance of the worst performing underlying stock at maturity and receive an amount equal
to the stated principal amount
times
the share performance factor of the worst performing underlying stock.
In example 3, the final share price of one underlying stock is
at or above its downside threshold level, but the final share price of the other underlying stock is below its downside threshold
level. Therefore, investors are exposed to the downside performance of the worst performing underlying stock at maturity and receive
at maturity an amount equal to the stated principal amount times the share performance factor of the worst performing underlying
stock.
In examples 4 and 5, the final share prices of both underlying
stocks are below their respective downside threshold levels, and investors receive at maturity an amount equal to the stated principal
amount
times
the share performance factor of the worst performing underlying stock. In example 4, the AMZN Stock has declined
60% from its initial share price to its final share price, while the NFLX Stock has declined 65% from its initial share price to
its final share price. Therefore, the payment at maturity equals the stated principal amount
times
the share performance
factor of the NFLX Stock, which is the worst performing underlying
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
stock in this example. In example 5, the AMZN Stock has declined
70% from its initial share price to its final share price, while the NFLX Stock has declined 65% from its initial share price.
Therefore the payment at maturity equals the stated principal amount
times
the share performance factor of the AMZN Stock,
which is the worst performing underlying stock in this example.
If the final share price of EITHER underlying stock is below
its respective downside threshold level, you will be exposed to the downside performance of the worst performing underlying stock
at maturity, and your payment at maturity will be less than 60% of the stated principal amount per security and could be zero.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Risk Factors
The
following is a list of certain key risk factors for investors in the securities. For further discussion of these and other risks,
you should read the section entitled “Risk Factors” in the accompanying product supplement and prospectus. You should
also consult with your investment, legal, tax, accounting and other advisers
in connection with your investment in
the securities
.
|
§
|
The securities do not guarantee the return of any principal.
The
terms of the securities differ from those of ordinary debt securities in that they do not guarantee the return of any of the principal
amount at maturity. If the securities have not been automatically redeemed prior to maturity and if the final share price of either
underlying stock is less than its downside threshold level of 60% of its initial share price, you will be exposed to the decline
in the closing price of the worst performing underlying stock, as compared to the initial share price, on a 1-to-1 basis, and you
will receive for each security that you hold at maturity an amount equal to the stated principal amount
times
the share
performance factor of the worst performing underlying stock. In this case, the payment at maturity will be less than 60% of the
stated principal amount and could be zero.
You could lose up to your entire investment in the securities.
|
|
§
|
The securities do not provide for the regular payment of interest
and may pay no interest over the entire term of the securities.
The terms of the securities differ from those of ordinary
debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent
quarterly coupon
but only if
the determination closing price of each underlying stock is
at or above
60% of its respective
initial share price, which we refer to as the respective downside threshold level, on the related observation date. If, on the
other hand, the determination closing price of
either
underlying stock is lower than its downside threshold level on the
relevant observation date for any interest period, we will pay no coupon on the applicable coupon payment date. It is possible
that the determination closing price of either underlying stock could remain below the respective downside threshold level for
extended periods of time or even throughout the entire 3-year term of the securities so that you will receive few or no contingent
quarterly coupons. If you do not earn sufficient contingent coupons over the term of the securities, the overall return on the
securities may be less than the amount that would be paid on a conventional debt security of ours of comparable maturity.
|
|
§
|
You are exposed to the price risk of both underlying stocks, with
respect to both the contingent quarterly coupons, if any, and the payment at maturity, if any.
Your
return on the securities is not linked to a basket consisting of both underlying stocks. Rather, it will be contingent upon the
independent performance of each underlying stock. Unlike an instrument with a return linked to a basket of underlying assets, in
which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related to both
underlying stocks. Poor performance by
either
underlying stock over the term of
the securities may negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying
stock. To receive
any
contingent quarterly coupons,
both
underlying stocks must close at or above their respective downside threshold levels on the applicable observation date. In addition,
if
either
underlying stock has declined to below its respective downside threshold
level as of the final observation date, you will be
fully exposed
to the decline
in the worst performing underlying stock over the term of the securities on a 1-to-1 basis, even if the other underlying stock
has appreciated. Under this scenario, the payment at maturity will be less than 60% of the stated principal amount and could be
zero. Accordingly, your investment is subject to the price risk of both underlying stocks.
|
|
§
|
The contingent coupon, if any, is based only on the determination closing prices of the underlying stocks on the related
quarterly observation date at the end of the related interest period
.
Whether the contingent coupon will be paid on any coupon payment date will be determined at the end of the relevant
interest period based on the determination closing price of each underlying stock on the relevant quarterly observation date. As
a result, you will not know whether you will receive the contingent coupon on any coupon payment date until near the end of the
relevant interest period. Moreover, because the contingent coupon is based solely on the price of each underlying stock on quarterly
observation dates, if the determination closing price of either underlying stock on any observation date is below the respective
downside threshold level, you will receive no coupon for the related interest period, even if the price(s) of one or both underlying
stocks were higher on other days during that interest period.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
§
|
Investors will not participate in any appreciation in the price of either underlying stock.
Investors will not participate
in any appreciation in the price of either underlying stock from its initial share price, and the return on the securities will
be limited to the contingent quarterly coupon, if any, that is paid with respect to each observation date on which both determination
closing prices are greater than or equal to their respective downside threshold levels, if any.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the securities in the secondary market and the
price at which MS & Co. may be willing to purchase or sell the securities in the secondary market. We expect that generally
the level of interest rates available in the market and the prices of the
underlying stocks
on any day, including in relation to the respective downside threshold levels, will affect the value of the securities more than
any other factors. Other factors that may influence the value of the securities include:
|
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying stocks,
|
|
o
|
whether the determination closing price of either underlying stock has been below its respective downside threshold level on
any observation date,
|
|
o
|
dividend rates on the underlying stocks,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stocks
and which may affect the prices of the underlying stocks,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. For example,
you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security if the price
of either underlying stock at the time of sale is near or below its downside threshold level or if market interest rates rise.
The
price of either or both underlying stocks may be, and have recently been, volatile, and we can give you no assurance that the volatility
will lessen.
The prices of either or both the underlying stocks may decrease and be below the respective downside threshold
level(s) on each observation date so that you will receive no return on your investment or receive a payment at maturity that is
less than 60% of the stated principal amount. There can be no assurance that the determination closing prices of both underlying
stocks will be at or above their respective downside threshold levels on any observation date so that you will receive a coupon
payment on the securities for the applicable interest period or, with respect to the final observation date, so that you do no
suffer a significant loss on your initial investment in the securities.
See
“
Amazon.com, Inc.
Overview” and
“Netflix, Inc. Overview” below.
|
§
|
The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities
on each coupon payment date, upon automatic redemption and at maturity and therefore you are subject to our credit risk. The securities
are not guaranteed by any other entity. 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.
|
|
§
|
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
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
of such securities in a bankruptcy,
resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related
guarantee by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations
of Morgan Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee.
Holders of securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over
and should be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including
holders of Morgan Stanley-issued securities.
|
§
|
Reinvestment risk.
The term of your investment in the securities
may be shortened due to the automatic early redemption feature of the securities. If the securities are redeemed prior to maturity,
you will receive no more contingent quarterly coupons and may be forced to invest in a lower interest rate environment and may
not be able to reinvest at comparable terms or returns. However, under no circumstances will the securities be redeemed in the
first six months of the term of the securities.
|
|
§
|
Investing in the securities is not equivalent to investing in the
common stock of Amazon.com, Inc. or the common stock of Netflix, Inc.
Investors in the securities
will not participate in any appreciation in the underlying stocks, and will not have voting rights or rights to receive dividends
or other distributions or any other rights with respect to the underlying stocks.
|
|
§
|
No affiliation with Amazon.com, Inc. or Netflix, Inc.
Amazon.com, Inc. and Netflix, Inc. are not affiliates of ours,
are not involved with this offering in any way, and have no obligation to consider your interests in taking any corporate actions
that might affect the value of the securities. We have not made any due diligence inquiry with respect to Amazon.com, Inc. or Netflix,
Inc. in connection with this offering.
|
|
§
|
We may engage in business with or involving Amazon.com, Inc. or Netflix, Inc. without regard to your interests.
We or
our affiliates may presently or from time to time engage in business with Amazon.com, Inc. or Netflix, Inc. without regard to your
interests and thus may acquire non-public information about Amazon.com, Inc. or Netflix, Inc. Neither we nor any of our affiliates
undertakes to disclose any such information to you. In addition, we or our affiliates from time to time have published and in the
future may publish research reports with respect to Amazon.com, Inc. or Netflix, Inc., which may or may not recommend that investors
buy or hold the underlying stock(s).
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying stocks.
MS & Co., as calculation agent, will adjust the adjustment factors for certain corporate events
affecting the underlying stocks, such as stock splits and stock dividends, and certain other corporate actions involving the issuers
of the underlying stocks, such as mergers. However, the calculation agent will not make an adjustment for every corporate event
that can affect the underlying stocks. For example, the calculation agent is not required to make any adjustments if the issuers
of the underlying stocks or anyone else makes a partial tender or partial exchange offer for the underlying stocks, nor will adjustments
be made following the final observation date. If an event occurs that does not require the calculation agent to adjust the adjustment
factors, the market price of the
securities
may be materially and adversely affected.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited
,
and
accordingly, you should be willing to hold your securities for the entire 3-year term of the securities.
The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, 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. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not 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.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
§
|
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 original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions
or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities
in secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices
will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne
by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any
dealer would charge in a secondary market transaction of this type as well as other factors.
|
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying stocks, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the 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 pricing 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 document 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 will be influenced by many unpredictable
factors” above.
|
|
§
|
Hedging and trading activity by our affiliates could potentially affect the value of the securities.
One or more of
our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related to the securities
(and to other instruments linked to the underlying stocks), including trading in the underlying stocks. Some of our affiliates
also trade the underlying stocks and other financial instruments related to the underlying stocks on a regular basis as part of
their general broker-dealer and other businesses. As a result, these entities may be unwinding or adjusting hedge positions during
the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as
the final observation date approaches. Any of these hedging or trading activities on or prior to the pricing date could have increased
the initial share price of an underlying stock, and, therefore, could have increased (i) the value at or above which such underlying
stock must close on the redemption determination dates so that the securities are redeemed prior to maturity for the early redemption
payment (depending also on the performance of the other underlying stock) and (ii) the downside threshold level for such underlying
stock, which is the value at or above which the underlying stock must close on the observation dates so that you receive a contingent
quarterly coupon on the securities (depending also on the performance of the other underlying stock), and, with respect to the
final observation date, so that you are not exposed to the negative performance of the worst performing underlying stock at maturity
(depending also on the performance of the other underlying stock). Additionally, such hedging or trading activities during the
term of the securities could potentially affect the value of either underlying stock on the redemption determination dates and
the observation dates, and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent quarterly
coupon on the securities and the amount of cash you will receive at maturity, if any (depending also on the performance of the
other underlying stock).
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. has determined the initial share prices and the downside threshold levels
and will determine the final share prices, the payment at maturity, if any, whether you receive a contingent quarterly coupon on
each coupon payment date and/or at maturity, whether the securities will be redeemed on any early redemption date, whether a market
disruption event has occurred and whether to make any adjustments to the adjustment factors. 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 non-occurrence of market disruption events and certain adjustments to the adjustment factors.
These potentially subjective determinations may affect the payout to you upon an automatic early redemption or at maturity, if
any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable
Securities Linked to Underlying Shares” and “—Calculation Agent and Calculations” and related definitions
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing
date.
|
|
§
|
The
U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal authority
as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects of the
tax treatment of the securities are uncertain.
|
Please read the discussion under
“Additional Provisions—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities
every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any,
between the actual and the projected amount of any contingent payments on the securities) and recognize all income and gain in
respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features.
Non-U.S. Holders should note that we currently intend to withhold
on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified by an applicable income tax treaty
under an “other income” or similar provision, and will not be required to pay any additional amounts with respect to
amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance 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 and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax.
Both U.S. and Non-U.S. Holders (as defined below) should consult their tax advisers regarding the U.S. federal income tax consequences
of an investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax
consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Amazon.com, Inc. Overview
Amazon.com, Inc. offers electronic retail services to consumer
customers, seller customers and developer customers. The AMZN Stock is registered under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Information provided to or filed with the Securities and Exchange Commission by Amazon.com,
Inc. pursuant to the Exchange Act can be located by reference to the Securities and Exchange Commission file number 000-22513 through
the Securities and Exchange Commission’s website at www.sec.gov. In addition, information regarding Amazon.com, Inc. may
be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated
documents.
Neither the issuer nor the agent makes any representation that such publicly available documents or any other publicly
available information regarding the issuer of the AMZN Stock is accurate or complete.
Information as of market close on July 26,
2016:
Bloomberg Ticker Symbol:
|
AMZN
|
Exchange:
|
NASDAQ
|
Current Stock Price:
|
$735.59
|
52 Weeks Ago:
|
$531.41
|
52 Week High (on 7/11/2016):
|
$753.78
|
52 Week Low (on 8/24/2015):
|
$463.37
|
Current Dividend Yield:
|
N/A
|
The following table sets forth the published
high and low closing prices of, as well as dividends on, the AMZN Stock for each quarter from January 1, 2013 through July 26,
2016. The closing price of the AMZN Stock on July 26, 2016 was $735.59. The associated graph shows the closing prices of the AMZN
Stock for each day from January 1, 2011 through July 26, 2016. We obtained the information in the table and graph below from Bloomberg
Financial Markets, without independent verification. The historical performance of the AMZN Stock should not be taken as an indication
of its future performance, and no assurance can be given as to the price of the AMZN Stock at any time, including the redemption
determination dates or the observation dates.
Common Stock of Amazon.com, Inc. (CUSIP 023135106)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2013
|
|
|
|
First Quarter
|
283.99
|
253.39
|
-
|
Second Quarter
|
281.76
|
248.23
|
-
|
Third Quarter
|
318.12
|
280.93
|
-
|
Fourth Quarter
|
404.39
|
298.23
|
-
|
2014
|
|
|
|
First Quarter
|
407.05
|
336.37
|
-
|
Second Quarter
|
342.99
|
288.32
|
-
|
Third Quarter
|
360.84
|
307.06
|
-
|
Fourth Quarter
|
338.64
|
287.06
|
-
|
2015
|
|
|
|
First Quarter
|
387.83
|
286.95
|
-
|
Second Quarter
|
445.99
|
370.26
|
-
|
Third Quarter
|
548.39
|
429.70
|
-
|
Fourth Quarter
|
693.97
|
520.72
|
-
|
2016
|
|
|
|
First Quarter
|
636.99
|
482.07
|
-
|
Second Quarter
|
728.24
|
586.14
|
-
|
Third Quarter (through July 26, 2016)
|
753.78
|
725.68
|
-
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
We make no representation as to the amount
of dividends, if any, that Amazon.com, Inc. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable
Securities, you will not be entitled to receive dividends, if any, that may be payable on the common stock of Amazon.com, Inc.
Common Stock of Amazon.com, Inc. – Daily Closing Prices
January 1, 2011 to July 26, 2016
|
|
* The red horizontal line indicates the downside threshold level
of $441.354, which is 60% of the initial share price.
This document relates only to the securities
referenced hereby and does not relate to the AMZN Stock or other securities of Amazon.com, Inc. We have derived all disclosures
contained in this document regarding Amazon.com, Inc. stock from the publicly available documents described in the preceding paragraph.
In connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents
or made any due diligence inquiry with respect to Amazon.com, Inc. Neither we nor the agent makes any representation that such
publicly available documents or any other publicly available information regarding Amazon.com, Inc. is accurate or complete. Furthermore,
we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy
or completeness of the publicly available documents described in the preceding paragraph) that would affect the trading price of
the AMZN Stock (and therefore the price of the AMZN Stock at the time we priced the securities) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose material future events concerning Amazon.com, Inc. could
affect the value received at maturity with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates
makes any representation to you as to the performance of the AMZN Stock.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Netflix, Inc. Overview
Netflix, Inc. is a subscription service streaming movies and
TV episodes over the Internet and sending DVDs by mail. The NFLX Stock is registered under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Information provided to or filed with the Securities and Exchange Commission by Netflix,
Inc. pursuant to the Exchange Act can be located by reference to the Securities and Exchange Commission file number 000-49802 through
the Securities and Exchange Commission’s website at.www.sec.gov. In addition, information regarding Netflix, Inc. may be
obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents.
Neither the issuer nor the agent makes any representation that such publicly available documents or any other publicly available
information regarding the issuer of the NFLX Stock is accurate or complete.
Information as of market close on July 26, 2016:
Bloomberg Ticker Symbol:
|
NFLX
|
Exchange:
|
NASDAQ
|
Current Stock Price:
|
$91.41
|
52 Weeks Ago:
|
$106.43
|
52 Week High (on 12/4/2015):
|
$130.93
|
52 Week Low (on 2/5/2016):
|
$82.79
|
Current Dividend Yield:
|
N/A
|
The following table sets forth the published
high and low closing prices of, as well as dividends on, the NFLX Stock for each quarter from January 1, 2013 through July 26,
2016. The closing price of the NFLX Stock on July 26, 2016 was $91.41. The associated graph shows the closing prices of the NFLX
Stock for each day from January 1, 2011 through July 26, 2016. We obtained the information in the table and graph below from Bloomberg
Financial Markets, without independent verification. The historical performance of the NFLX Stock should not be taken as an indication
of its future performance, and no assurance can be given as to the price of the NFLX Stock at any time, including the redemption
determination dates or the observation dates.
Common Stock of Netflix, Inc. (CUSIP 64110L106)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2013
|
|
|
|
First Quarter
|
28.06
|
13.14
|
–
|
Second Quarter
|
34.77
|
23.29
|
–
|
Third Quarter
|
44.83
|
31.56
|
–
|
Fourth Quarter
|
54.37
|
41.20
|
–
|
2014
|
|
|
|
First Quarter
|
65.00
|
46.96
|
–
|
Second Quarter
|
64.10
|
44.89
|
–
|
Third Quarter
|
69.20
|
60.27
|
–
|
Fourth Quarter
|
66.69
|
45.21
|
–
|
2015
|
|
|
|
First Quarter
|
69.00
|
45.55
|
–
|
Second Quarter
|
97.31
|
59.02
|
–
|
Third Quarter
|
126.45
|
93.51
|
–
|
Fourth Quarter
|
130.93
|
97.32
|
–
|
2016
|
|
|
|
First Quarter
|
117.68
|
82.79
|
–
|
Second Quarter
|
111.51
|
85.33
|
–
|
Third Quarter (through July 26, 2016)
|
98.81
|
85.84
|
–
|
We make no representation as to the amount
of dividends, if any, that Netflix, Inc. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable
Securities, you will not be entitled to receive dividends, if any, that may be payable on the common stock of Netflix, Inc.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Common Stock of Netflix, Inc. – Daily Closing Prices
January 1, 2011 to July 26, 2016
|
|
* The red horizontal line indicates the downside threshold level
of $54.846, which is 60% of the initial share price.
This document relates only to the securities
referenced hereby and does not relate to the NFLX Stock or other securities of Netflix, Inc. We have derived all disclosures contained
in this document regarding Netflix, Inc. stock from the publicly available documents described in the preceding paragraph. In connection
with the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any
due diligence inquiry with respect to Netflix, Inc. Neither we nor the agent makes any representation that such publicly available
documents or any other publicly available information regarding Netflix, Inc. is accurate or complete. Furthermore, we cannot give
any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness
of the publicly available documents described in the preceding paragraph) that would affect the trading price of the NFLX Stock
(and therefore the price of the NFLX Stock at the time we priced the securities) have been publicly disclosed. Subsequent disclosure
of any such events or the disclosure of or failure to disclose material future events concerning Netflix, Inc. could affect the
value received at maturity with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates
makes any representation to you as to the performance of the NFLX Stock.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
Additional
Information About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Provisions:
|
Interest period:
|
|
Quarterly
|
Record date:
|
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date;
provided
, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Underlying stock:
|
|
The accompanying product supplement refers to the underlying stock as the “underlying shares.”
|
Underlying stock issuer:
|
|
With respect to the AMZN Stock, Amazon.com, Inc.
With respect to the NFLX Stock, Netflix, Inc.
The accompanying product supplement refers to the underlying
stock issuer as the “underlying company.”
|
Downside threshold level:
|
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Day count convention:
|
|
30/360
|
Postponement of coupon payment dates (including the maturity date) and early redemption dates:
|
|
If any observation date or redemption determination date for any underlying stock is postponed due to a non-trading day or certain market disruption events with respect to such underlying stock so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment, early redemption payment or payment at maturity made on that postponed date.
|
Antidilution adjustments:
|
|
The following replaces in its entirety the portion of the
section entitled “Antidilution Adjustments” in the accompanying product supplement for auto-callable securities from
the start of paragraph 5 to the end of such section.
5. If, with respect to either or both underlying stocks, (i)
there occurs any reclassification or change of such underlying stock, including, without limitation, as a result of the issuance
of any tracking stock by the underlying stock issuer for such underling stock, (ii) such underlying stock issuer or any surviving
entity or subsequent surviving entity of such underlying stock issuer (the “successor corporation”) has been subject
to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory exchange of securities of such underlying
stock issuer or any successor corporation with another corporation occurs (other than pursuant to clause (ii) above), (iv) such
underlying stock issuer is liquidated, (v) such underlying stock issuer issues to all of its shareholders equity securities of
an issuer other than such underlying stock issuer (other than in a transaction described in clause (ii), (iii) or (iv) above) (a
“spin-off event”) or (vi) a tender or exchange offer or going-private transaction is consummated for all the outstanding
shares of such underlying stock (any such event in clauses (i) through (vi), a “reorganization event”), the method
of determining whether an early redemption has occurred and the amount payable upon an early redemption date or at maturity for
each security will be as follows:
·
Upon
any redemption determination date following the effective date of a reorganization event and prior to the final observation date:
If the exchange property value (as defined below) is greater than or equal to its initial share price, and the final share price
(or exchange property value, if applicable) of the other underlying stock is also greater than or equal to its initial share price,
the securities will be automatically redeemed for an early redemption payment.
·
Upon
the final observation date, if the securities have not previously been automatically redeemed: You will receive for each security
that you hold a payment at maturity equal to:
Ø
If
the exchange property value on the final observation date is greater than or equal to the respective downside threshold level,
and the final share price of the other underlying stock (or exchange property value, as applicable) is also greater than its downside
threshold level:
(i) the stated principal amount plus (ii) the contingent quarterly
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
|
coupon with respect to the final observation date.
Ø
If
the exchange property value on the final observation date is less than the respective downside threshold level, or if the final
share price (or exchange property value, if applicable) of the other underlying stock is less than its downside threshold level:
Ø
If
the worst performing underlying stock has not undergone a reorganization event as described in paragraph 5 above:
(i) the stated
principal amount multiplied by (ii) the share performance factor of the worst performing underlying stock.
Ø
If
the worst performing underlying stock has undergone a reorganization event as described in paragraph 5 above:
(i) the stated
principal amount multiplied by (ii) the share performance factor of the worst performing underlying stock. For purposes of calculating
the share performance factor, the “final share price” of the worst performing underlying stock will be deemed to equal
the cash value, determined as of the final observation date, of the securities, cash or any other assets distributed to holders
of the worst performing underlying stock in or as a result of any such reorganization event, including (A) in the case of the issuance
of tracking stock, the reclassified share of such worst performing underlying stock, (B) in the case of a spin-off event, the share
of such worst performing underlying stock with respect to which the spun-off security was issued, and (C) in the case of any other
reorganization event where such worst performing underlying stock continues to be held by the holders receiving such distribution,
such worst performing underlying stock (collectively, the “exchange property”), per share of such worst performing
underlying stock times the adjustment factor for such worst performing underlying stock on the final observation date.
Following the effective date of a reorganization event, the contingent
quarterly coupon will be payable for each observation date on which the exchange property value is greater than or equal to the
downside threshold level and the determination closing price (or exchange property value, as applicable) of the other underlying
stock is also greater than or equal to its downside threshold level.
If exchange property includes a cash component,
investors will not receive any interest accrued on such cash component. In the event exchange property consists of securities,
those securities will, in turn, be subject to the antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not
the exchange property value is less than the initial share price, or less than the downside threshold level, or for determining
the worst performing underlying stock, “exchange property value” means (x) for any cash received in any reorganization
event, the value, as determined by the calculation agent, as of the date of receipt, of such cash received for one share of such
underlying stock, as adjusted by the adjustment factor at the time of such reorganization event, (y) for any property other than
cash or securities received in any such reorganization event, the market value, as determined by the calculation agent in its sole
discretion, as of the date of receipt, of such exchange property received for one share of such underlying stock, as adjusted by
the adjustment factor at the time of such reorganization event and (z) for any security received in any such reorganization event,
an amount equal to the determination closing price, as of the day on which the exchange property value is determined, per share
of such security multiplied by the quantity of such security received for each share of such underlying stock, as adjusted by the
adjustment factor at the time of such reorganization event.
For purposes of paragraph 5 above, in the case
of a consummated tender or exchange offer or going-private transaction involving consideration of particular types, exchange property
shall be deemed to include the amount of cash or other property delivered by the offeror in the tender or exchange offer (in an
amount determined on the basis of the rate of exchange in such tender or exchange offer or going-private transaction). In the event
of a tender or exchange offer or a going-private transaction with respect to exchange property in which an offeree may elect to
receive cash or other property, exchange property shall be deemed to include the kind and amount of cash and other property received
by offerees who elect to receive cash.
Following the occurrence of any reorganization
event referred to in paragraph 5 above, all references in this offering document and in the related product supplement with respect
to the securities to such “underlying stock” shall be deemed to refer to the exchange property and references to a
“share” or “shares” of such underlying stock shall be deemed to refer to the
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
|
applicable unit or units of such exchange property,
unless the context otherwise requires.
No adjustment to the adjustment factor will
be required unless such adjustment would require a change of at least 0.1% in the adjustment factor then in effect. The adjustment
factor resulting from any of the adjustments specified above will be rounded to the nearest one hundred-thousandth, with five one-millionths
rounded upward. Adjustments to the adjustment factor will be made up to the close of business on the final observation date.
No adjustments to the adjustment factor or
method of calculating the adjustment factor will be required other than those specified above. The adjustments specified above
do not cover all events that could affect the determination closing price or the final share price of such underlying stock, including,
without limitation, a partial tender or exchange offer for such underlying stock.
The calculation agent shall be solely responsible
for the determination and calculation of any adjustments to the adjustment factor or method of calculating the adjustment factor
and of any related determinations and calculations with respect to any distributions of stock, other securities or other property
or assets (including cash) in connection with any corporate event described in paragraphs 1 through 5 above, and its determinations
and calculations with respect thereto shall be conclusive in the absence of manifest error.
The calculation agent will provide information as to any adjustments
to an adjustment factor or to the method of calculating the amount payable at maturity of the securities made pursuant to paragraph
5 above upon written request by any investor in the securities.
|
Minimum ticketing size:
|
|
$1,000 / 1 security
|
Tax considerations:
|
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the
material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the securities.
This discussion applies only to initial investors in the securities who:
·
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
·
hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
·
certain
financial institutions;
·
insurance
companies;
·
certain
dealers and traders in securities or commodities;
·
investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
·
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated
investment companies;
·
real
estate investment trusts; or
·
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of
the Code, respectively.
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner
in such a partnership, you should consult your tax adviser as to the
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
|
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. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum
tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or administrative authorities
that directly address the treatment of the securities or instruments that are similar to the securities for U.S. federal income
tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described herein. We intend to
treat a security for U.S. federal income tax purposes as a single financial contract that provides for a coupon that will be treated
as gross income to you at the time received or accrued in accordance with your regular method of tax accounting. In the opinion
of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law; however, our counsel
has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative
treatments are possible.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments
of the securities). Unless otherwise stated, the following discussion is based on the treatment of each security as described in
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
·
a
citizen or individual resident of the United States;
·
a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
·
an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as set forth above is
respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s tax basis in the securities
should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments
. Any coupon payment on
the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in accordance with the U.S.
Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the Securities
.
Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between
the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
|
securities sold, exchanged or settled. For
this purpose, the amount realized does not include any coupon paid at settlement and may not include sale proceeds attributable
to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should be long-term capital gain
or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange or settlement, and
should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities
under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”). If the
IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character of income
thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on
the securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
securities would be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S.
Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing
for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater
than the risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income tax treatments of the securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders
of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment. It also
asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded
status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible
alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely
furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the
securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
|
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:
·
an
individual who is classified as a nonresident alien;
·
a
foreign corporation; or
·
a
foreign estate or trust.
The term “Non-U.S. Holder”
does not include any of the following holders:
·
a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
·
certain
former citizens or residents of the United States; or
·
a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Legislation
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
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Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
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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. This legislation 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, for dispositions
after December 31, 2018, 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. While the treatment of the securities is unclear, you should assume
that any coupon payment with respect to the securities will be subject to the FATCA rules. It is also possible in light of this
uncertainty that an applicable withholding agent will treat gross proceeds of a disposition (including upon retirement) of the
securities after 2018 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, 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.
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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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Use of proceeds and hedging:
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The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we hedged our anticipated exposure
in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers. We expect
our hedging counterparties to have taken positions in the underlying stocks and in futures and/or options contracts on the underlying
stocks. Such purchase activity could have increased the initial share price of an underlying stock, and, therefore, could have
increased (i) the value at or above which such underlying stock must close on the redemption determination dates so that the securities
are redeemed prior to maturity for the early redemption payment (depending also on the performance of the other underlying stock)
and (ii) the downside threshold level for such underlying stock, which is the value at or above which the underlying stock must
close on the observation dates so that you receive a contingent quarterly coupon on the securities (depending also on the performance
of the other underlying stock), and, with respect to the final observation date, so that you are not exposed to the negative performance
of the underlying stock at maturity (depending also on the performance of the other underlying stock). These entities may be unwinding
or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent
dynamic adjustments to the hedge as the final observation date approaches. Additionally, our hedging activities, as well as our
other trading activities, during the term of the securities could potentially affect the value of either underlying stock on the
redemption determination dates and other observation dates, and, accordingly, whether we redeem the securities prior to maturity,
whether we pay a contingent quarterly coupon on the securities and the amount of cash you will receive at maturity, if any (depending
on the performance of the other underlying stock). For further information on our use of proceeds and hedging, see “Use of
Proceeds and Hedging” in the accompanying product supplement.
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Benefit plan investor considerations:
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Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including
MS & Co., may each be considered a
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Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
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“party in interest” within the meaning of
ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”),
with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section
406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited
transactions within the meaning of ERISA or the Code would likely arise, for example, if the securities are acquired by or with
the assets of a Plan with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest,
unless the securities are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of
these “prohibited transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for such persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited
transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined
by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company
separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In
addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) may provide an exemption for the purchase and sale of securities
and the related lending transactions,
provided
that neither the issuer of the securities nor any of its affiliates has or
exercises any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved
in the transaction and
provided further
that the Plan pays no more, and receives no less, than “adequate consideration”
in connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any
of these class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with
respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets
include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or
any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive
relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase,
holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee
or holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and
holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf
of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject
to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section
4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or
such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of these rules and the penalties
that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries
or other persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with
their counsel regarding the availability of exemptive relief.
The securities are contractual financial instruments.
The financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy
for, individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities.
Each purchaser or holder of any securities
acknowledges and agrees that:
(i) the purchaser or holder or its fiduciary has made and
shall make all investment decisions for the purchaser or holder and the purchaser or holder has not relied and shall not rely in
any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (A) the design and
terms of the securities, (B)
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Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
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the purchaser or holder’s
investment in the securities, or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we and our affiliates
have acted and will act solely for our own account in connection with (A) all transactions relating to the securities and (B) all
hedging transactions in connection with our obligations under the securities;
(iii) any and all assets and
positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets
and positions held for the benefit of the purchaser or holder;
(iv) our interests are adverse
to the interests of the purchaser or holder; and
(v) neither we nor any of
our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions,
and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive
responsibility for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction
rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect
a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally
or any particular plan.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations:
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the securities, either directly or indirectly.
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Supplemental information regarding plan of distribution; conflicts of interest:
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Selected dealers, which may include our affiliates, and their
financial advisors will collectively receive from the agent a fixed sales commission of $20 for each security they sell;
provided
that dealers selling to investors purchasing the securities in fee-based advisory accounts will receive a sales commission of $5
per security.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
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Validity of the securities:
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In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as
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Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due July 31, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Amazon.com, Inc. and the Common Stock of Netflix, Inc.
Principal at Risk Securities
|
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of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated February 16, 2016, which is Exhibit 5-a to Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 filed by Morgan Stanley on February 16, 2016.
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Contact:
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Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
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Where you can find more information:
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MSFL and Morgan Stanley have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, the
product supplement for auto-callable securities and any other documents relating to this offering that MSFL and Morgan Stanley
have filed with the SEC for more complete information about MSFL, Morgan Stanley and this offering. You may get these documents
without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov. Alternatively, MSFL, Morgan
Stanley, any underwriter or any dealer participating in the offering will arrange to send you the prospectus and the product supplement
for auto-callable securities if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on
the SEC web site at
.
www.sec.gov as follows:
Product
Supplement for Auto-Callable Securities dated February 29, 2016
Prospectus
dated February 16, 2016
Terms used but not defined in this
document are defined in the product supplement for auto-callable securities or in the prospectus.
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