CALCULATION
OF REGISTRATION FEE
|
|
Maximum Aggregate
|
|
Amount of Registration
|
Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
|
|
|
|
|
Contingent Income Securities due 2019
|
|
$1,845,000
|
|
$185.79
|
September
2016
Pricing Supplement No. 1,076
Registration Statement Nos. 333-200365;
333-200365-12
Dated September 23, 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
September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst
Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The securities
are unsecured obligations of
Morgan Stanley Finance LLC (“MSFL”), fully and unconditionally guaranteed by Morgan
Stanley,
and 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 VanEck Vectors Oil Services
TM
ETF and the United States
Oil Fund, LP
, which we refer to as the underlyings,
is
at or above
50% 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
is less than its respective
downside threshold level on any observation date, we will pay no interest for the related quarterly period. In addition, starting
in
September 2017
, the securities will be automatically redeemed
if the determination closing
price of each of the underlyings is
greater than or equal to
its respective initial
price
on any quarterly redemption determination date 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 price of each underlying 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. However, if the final price of
either underlying
is less than its respective downside threshold level, investors
will be exposed to the decline in the worst performing underlying on a 1-to-1 basis, and will receive a payment at maturity that
is less than 50% 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 losing a significant
portion or all of their investment, and 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 after the 1-year initial non-call period. Because the payment
of contingent quarterly coupons is based on the worst performing of the underlyings, the fact that the securities are linked to
two underlyings does not provide any asset diversification benefits and instead means that a decline of either of the underlyings
below the relevant downside threshold level will result in no contingent quarterly coupons, even if the other underlying closes
at or above its respective downside threshold level. Because all payments on the securities are based on the worst performing of
the underlyings, a decline beyond the respective downside threshold level of either of the underlyings will result in no contingent
quarterly coupon payments and a significant loss of your investment, even if the other underlying has appreciated or has not declined
as much. Investors will not participate in any appreciation of either of the underlyings. 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
|
Underlyings:
|
The VanEck Vectors Oil Services
TM
ETF (the “OIH Shares”) and the United States Oil Fund, LP (the “USO Units”)
|
Aggregate principal amount:
|
$1,845,000
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
|
September 23, 2016
|
Original issue date:
|
September 28, 2016 (3 business days after the pricing date)
|
Maturity date:
|
September 30, 2019
|
Early redemption:
|
The securities are not subject to automatic early redemption
until approximately one year after the original issue date.
Following the initial 1-year non-call period, if, on any redemption
determination date, beginning on the third scheduled business day preceding September 30, 2017, the determination closing price
of
each of the underlyings
is greater than or equal to its respective initial 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 of the underlyings is below its respective initial 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 of the underlyings, the closing price of such underlying on any redemption determination date or observation date (other than the final observation date),
times
the adjustment factor for such underlying on such redemption 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 September 30, 2017, quarterly, on the 30
th
day of each March, June, September and December;
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 8.00%
(corresponding to approximately $20.00 per quarter per security) will be paid on the securities on each coupon payment date
but
only if
the determination closing price of
each of the underlyings
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 of the underlyings 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 of the underlyings 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.
|
Downside threshold levels:
|
With respect to the OIH Shares, $13.76, which is equal to 50%
of its initial price
With respect to the USO Units, $5.265, which is equal to 50%
of its initial price
|
Payment at maturity:
|
·
If
the final price of
each of the underlyings
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 price of
either of the underlyings is less than
its respective downside threshold level: (i) the stated principal
amount
multiplied by
(ii) the underlying performance factor of the worst performing underlying
Under these circumstances, the payment at maturity
will be less than 50% of the stated principal amount and could be zero.
|
|
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:
|
$929.90 per security. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions and fees
(1)
|
Proceeds to us
(2)
|
Per security
|
$1,000
|
$28.80
|
$971.20
|
Total
|
$1,845,000
|
$53,136
|
$1,791,864
|
|
(1)
|
Selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission
of $28.80 for each security they sell. 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.
|
|
(2)
|
See “Use of proceeds and hedging” on page 29.
|
The securities involve risks
not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 11.
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 September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
Terms continued from previous page:
|
Initial
price
:
|
With respect to the OIH Shares, $27.52, which is its closing
price on September 22, 2016
With respect to the USO Units, $10.53, which is its closing price
on September 22, 2016
|
Coupon payment dates:
|
Quarterly, on the 30
th
day of each March, June, September and December, beginning December 30, 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 December 30, 2016 scheduled coupon payment date, subject, independently in the case of each of the underlyings, to postponement for non-trading days and certain market disruption events. We also refer to September 25, 2019, which is the third scheduled business day preceding the scheduled maturity date, as the final observation date.
|
Final
price
:
|
With respect to each of the underlyings, the closing price of such underlying on the final observation date
times
the adjustment factor for such underlying on such date
|
Adjustment factor:
|
With respect to each of the underlyings, 1.0, subject to adjustment in the event of certain events affecting such underlying
|
Worst performing underlying:
|
The underlying with the larger percentage decrease from the respective initial price to the respective final price
|
Underlying performance factor:
|
Final price
divided by
the initial price
|
CUSIP / ISIN:
|
61768CAJ6 / US61768CAJ62
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due September 30,
2019, With 1-year Initial Non-Call Period All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil
Services
TM
ETF and the United States Oil Fund, LP (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 of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
, which we refer to
as the underlyings, is
at or above
50% of its respective initial price, which we refer to as the respective downside threshold
level, on the related observation date. If, however, the determination closing price of
either of the underlyings
is less
than its respective downside threshold level on any observation date, we will pay no interest for the related quarterly period.
In addition, starting in September 2017, the securities will be automatically redeemed if the determination closing price of each
of the underlyings is
greater than or equal to
its respective initial price on any quarterly redemption determination date
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 price of each of the underlyings 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. However, if the final price of
either of the underlyings
is less than its respective
downside threshold level, investors will be exposed to the decline in the worst performing underlying on a 1-to-1 basis, and will
receive a payment at maturity that is less than 50% 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.
Investors will not participate
in any appreciation in the price of either of the underlyings.
Maturity:
|
Approximately 3 years
|
|
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of 8.00%
(corresponding to approximately $20.00 per quarter per security) will be paid on the securities on each coupon payment date
but
only if
the determination closing price of
each of the underlyings
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 of the underlyings 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
September 30, 2017:
|
Starting on September 30, 2017, if the determination closing price of
each of the underlyings
is greater than or equal to its respective initial price on any quarterly redemption determination date, beginning on the third scheduled business day preceding September 30, 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
price of
each of the underlyings
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 price of
either of the underlyings
is less
than its respective downside threshold level, investors will receive a payment at maturity based on the decline in the worst performing
underlying over the term of the securities. Under these circumstances, the payment at maturity will be less than 50% 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 September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
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 $929.90.
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 underlyings.
The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the underlyings, instruments based on the underlyings, volatility and other factors including current and expected interest
rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our
conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the 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 of the economic 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 underlyings, 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 underlyings,
and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those
higher values will also be reflected in your brokerage account statements.
MS & Co. 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 September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
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 of
the underlyings
is
at or above its respective downside threshold level
on the related observation date. 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 quarterly 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 50% 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, each of
the underlyings closes at or above its respective downside threshold level on some quarterly observation dates, but one or both
of the underlyings 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 price of each of the underlyings is at or above its respective
downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing
price of one or both of the underlyings is below the respective downside threshold level(s) on the related observation date.
Starting on September 30, 2017, when each of the underlyings
closes at or above its respective initial price on a quarterly redemption determination date, 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 each of the underlyings closes at or above its respective downside threshold level on some quarterly observation dates, but one or both of the underlyings close below the respective downside threshold level(s) on the others, and at least one of the underlyings closes below its initial 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 price of each of the underlyings is at or above its respective downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price of one or both of the underlyings is below the respective downside threshold level(s) on the related observation date. On the final observation date, each of the underlyings closes at or above its respective downside threshold level. 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 September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
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 each of the underlyings closes at or above its respective downside threshold level on some quarterly observation dates, but one or both of the underlyings close below the respective downside threshold level(s) on the others, and at least one of the underlyings closes below its initial 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 price of each of the underlyings is greater than or equal to its respective downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price of one or both of the underlyings is below the respective downside threshold level(s) on the related observation date. On the final observation date, one or both of the underlyings close below the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal amount multiplied by the underlying performance factor of the worst performing underlying. Under these circumstances, the payment at maturity will be less than 50% 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 September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
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 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 September 30, 2017)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
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 September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
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. 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 of the underlyings on each quarterly redemption determination date, and
the amount you will receive at maturity, if any, will be determined by reference to the final price of each of the underlyings
on the final observation date. The actual initial price and downside threshold level for each of the underlyings 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:
|
8.00% per annum (corresponding to approximately $20.00 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 of the underlyings is at or above its respective downside threshold
level on the related observation date.
|
Payment at Maturity
|
If the final price of
each of the underlyings
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 price of
either of the underlyings is less than
its respective downside threshold level: (i) the stated principal amount
multiplied by
(ii) the underlying performance
factor of the worst performing underlying
|
Stated Principal Amount:
|
$10
|
Hypothetical Initial Price:
|
With respect to the OIH Shares: $10.00
With respect to the USO Units: $30.00
|
Hypothetical Downside Threshold Level:
|
With respect to the OIH Shares: $5.00, which is 50% of its hypothetical
initial price
With respect to the USO Units: $15.00, which is 50% of its hypothetical
initial 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 $20.00 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
|
|
OIH Shares
|
USO Units
|
|
Hypothetical Observation Date 1
|
$12.00 (
at or above
its downside threshold level)
|
$20.00 (
at or above
its downside threshold level)
|
$20.00
|
|
|
|
|
Hypothetical Observation Date 2
|
$3.00 (
below
its downside threshold level)
|
$18.00 (
at or above
its downside threshold level)
|
$0
|
|
|
|
|
Hypothetical Observation Date 3
|
$8.00 (
at or above
its downside threshold level)
|
$12.00 (
below
its downside threshold level)
|
$0
|
|
|
|
|
Hypothetical Observation Date 4
|
$2.00 (
below
its downside threshold level)
|
$8.00 (
below
its downside threshold level)
|
$0
|
On hypothetical observation date 1, each of the underlyings closes
at or above its respective downside threshold level. Therefore, a hypothetical contingent quarterly coupon of $20.00 is paid on
the relevant coupon payment date.
On each of hypothetical observation dates 2 and 3, one of the
underlyings closes at or above its respective downside threshold level but the other underlying closes below its respective downside
threshold level. Therefore, no contingent quarterly coupon is paid on the relevant coupon payment date.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
On hypothetical observation date 4, each of the underlyings 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 of the underlyings 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 of the underlyings close
below the respective initial price(s) on each redemption determination date, and, consequently, the securities are not automatically
redeemed prior to, and remain outstanding until, maturity.
|
Final Price
|
Payment at Maturity
|
|
OIH Shares
|
USO Units
|
|
Example 1:
|
$9.00 (
at or above
its downside threshold level)
|
$27.00 (
at or above
its downside threshold level)
|
$1,020 (the stated principal amount
plus
the contingent quarterly coupon with respect to the final observation date)
|
|
|
|
|
Example 2:
|
$12.00 (
at or above
its downside threshold level)
|
$12.00 (
below
its downside threshold level)
|
$1,000 x ($12.00 / $30.00) = $400.00
|
|
|
|
|
Example 3:
|
$2.00 (
below
its downside threshold level)
|
$13.50 (
below
its downside threshold level)
|
$1,000 x ($2.00 / $10.00) = $200.00
|
|
|
|
|
Example 4:
|
$4.00 (
below
its downside threshold level)
|
$9.00 (
below
its downside threshold level)
|
$1,000 x ($9.00 / $30.00) = $300.00
|
In example 1, the final price of each of the underlyings is at
or above its respective downside threshold level. 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 price of one of the underlyings is at
or above its downside threshold level, but the final price of the other underlying is below its respective downside threshold level.
Therefore, investors are exposed to the downside performance of the worst performing underlying at maturity. The OIH Shares have
increased 20% from their initial price to their final price, while the USO Units have declined 60% from their initial price to
their final price. Therefore, investors receive at maturity an amount equal to the stated principal amount times the underlying
performance factor of the USO Units, which are the worst performing underlying in this example.
In example 3, the final price of each of the underlyings is below
its respective downside threshold level, and investors receive at maturity an amount equal to the stated principal amount
times
the underlying performance factor of the worst performing underlying. The OIH Shares have declined 80% from their initial price
to their final price, and the USO Units have declined 55% from their initial price to their final price. Therefore, the payment
at maturity equals the stated principal amount
times
the underlying performance factor of the OIH Shares, which are the
worst performing underlying in this example.
In example 4, the final price of each of the underlyings is below
its respective downside threshold level, and investors receive at maturity an amount equal to the stated principal amount
times
the underlying performance factor of the worst performing underlying. The OIH Shares have declined 60% from their initial price
to their final price, and the USO Units have declined 70% from their initial price to their final price. Therefore, the payment
at maturity equals the stated principal amount
times
the underlying performance factor of the USO Units, which are the worst
performing underlying in this example.
If the final price of EITHER of the underlyings is below its
respective downside threshold level, you will be exposed to the downside performance of the worst performing underlying at maturity,
and your payment at maturity will be less than 50% of the stated principal amount per security and could be zero.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
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. We also
urge you to 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 price of
either
of the underlyings
is less than its downside threshold level of 50% of its initial price, you will be exposed to the decline
in the closing price of the worst performing underlying, as compared to the initial 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 underlying performance
factor of the worst performing underlying. In this case, the payment at maturity will be less than 50% of the stated principal
amount and could be zero.
|
|
§
|
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 of the underlyings
is
at or above
50%
of its respective initial price, which we refer to as the downside threshold level, on the related observation date. If, on the
other hand, the determination closing price of
either of the underlyings
is lower than its respective 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 one or both of the underlyings could remain below the 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. If you do not earn sufficient contingent quarterly 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 each of the underlyings, 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 each of the underlyings. Rather, it will be contingent upon the
independent performance of each of the underlyings. 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
each of the underlyings. Poor performance by
either of the underlyings
over the
term of the securities may negatively affect your return and will not be offset or mitigated by any positive performance by the
other underlying. To receive
any
contingent quarterly coupons,
each of
the underlyings
must close at or above its respective downside threshold level on the applicable
observation date. In addition, if
either of the underlyings
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 over the term of the securities on a 1-to-1 basis, even if the other underlying
has appreciated. Under this scenario, the value of any such payment at maturity will be less than 50% of the stated principal amount
and could be zero. Accordingly, your investment is subject to the price risk of each of the underlyings.
|
|
§
|
The contingent quarterly coupon, if any, is based only on the determination closing prices of the underlyings on the related
quarterly observation date at the end of the related interest period
.
Whether
the contingent quarterly 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 of the underlyings on the relevant quarterly observation date. As a result,
you will not know whether you will receive the contingent quarterly coupon on any coupon payment date until near the end of the
relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the price of each of the underlyings
on quarterly observation dates, if the determination closing price of either of the underlyings on any observation date is below
its respective downside threshold level, you will receive no coupon for the related interest period even if the price of the other
underlying was higher on other days during that interest period.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
|
§
|
Investors will not participate in any appreciation in the price of either of the underlyings.
Investors will not participate
in any appreciation in the price of the underlyings from their initial prices, and the return on the securities will be limited
to the contingent quarterly coupon that is paid with respect to each observation date on which each determination closing price
is greater than or equal to its respective downside threshold level, 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
underlyings
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 underlyings and their constituents,
|
|
o
|
whether the determination closing price of either of the underlyings has been below its respective downside threshold level
on any observation date,
|
|
o
|
dividend rates on the constituents of the underlyings, where applicable,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlyings or equity
markets generally and which may affect the prices of the underlyings,
|
|
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 underlyings that may or may not require an adjustment to an adjustment factor,
|
|
o
|
the composition of the underlyings and changes in the constituents of the underlyings, 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 of the underlyings at the time of sale is near or below its downside threshold level or if market interest
rates rise.
The
price of any or both of the underlyings may be, and have recently been, volatile, and we can give you no assurance that the volatility
will lessen.
The prices of one or both of the underlyings 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 and receive a payment at maturity that is less than
50% of the stated principal amount. There can be no assurance that the determination closing prices of both of the underlyings
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
“
VanEck Vectors Oil Services
TM
ETF Overview
”
and
“
United States Oil Fund, LP Overview
”
below
.
|
§
|
Investing in the securities exposes investors to risks associated
with investments in securities with a concentration in the oil services industry.
Each of the equity securities held
by the OIH Shares has been issued by a company whose business is associated with the oil services industry, and so an investment
in the securities will be concentrated in this industry. Oil services companies operate in a highly competitive and cyclical
industry, with intense price competition. Recently, oil prices have declined significantly and experienced significant volatility,
which may adversely affect companies operating in the oil services industry. The prices of the equity securities held by
the OIH Shares and, in turn, the price of the OIH Shares will be affected by a number of factors that may either offset or magnify
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
each other, including: worldwide
energy prices, including all sources of energy, and exploration and production spending, changes in exchange rates and the price
of oil and gas, government regulation, the imposition of import controls, world events, negative perception, depletion of resources
and general economic conditions, development of alternative energy sources, energy conservation efforts, technological developments,
labor relations, natural disasters and adverse weather conditions, as well as market, economic, social and political risks of the
countries in which oil services companies are located or do business. As a result, the value of the securities may be subject to
greater volatility and be more adversely affected by a single positive or negative economic, political or regulatory occurrence
affecting this industry than a different investment linked to securities of a more broadly diversified group of issuers.
|
§
|
Commodity futures prices are characterized by high and unpredictable volatility, which could lead to high and unpredictable
volatility in the USO Units.
Market prices of the commodity futures contracts held by the USO Units tend to be highly volatile
and may fluctuate rapidly based on numerous factors, including changes in supply and demand relationships, governmental programs
and policies, national and international monetary, trade, political and economic events, changes in interest and exchange rates,
speculation and trading activities in crude oil and related contracts, weather, and trade, fiscal and exchange control policies.
The market prices of crude oil futures contracts are significantly influenced by the Organization of Petroleum Exporting Countries
(“OPEC”). OPEC has the potential to influence crude oil futures prices worldwide because its members possess a significant
portion of the world’s oil supply. These factors may affect the price of the USO Units in varying ways, and different factors
may cause the prices of the commodity futures contracts included in the USO Units to move in inconsistent directions at inconsistent
rates. This, in turn, will affect the value of the securities.
|
|
§
|
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 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 year of the term of the securities.
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlyings.
MS & Co., as calculation agent, will adjust the adjustment factors for certain events affecting the underlyings. However, the
calculation agent will not make an adjustment for every event that can affect the underlyings. If an event occurs that does not
require the calculation agent to adjust an adjustment factor, the market price of the
securities
may be materially and adversely affected.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
|
§
|
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.
|
|
§
|
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 shares, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
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 pricing supplement will vary based on many factors that cannot be predicted
with accuracy, including our creditworthiness and changes in market conditions. See also “The market price will be influenced
by many unpredictable factors” above.
|
|
§
|
Adjustments to the OIH Shares or to their share underlying index could adversely affect the value of the securities.
The investment advisor to the VanEck Vectors Oil Services
TM
ETF, Van Eck Associates Corporation (the “Investment Advisor” or “Van Eck”), seeks investment results that
correspond generally to the price and yield performance, before fees and expenses, of
MVIS
TM
U.S. Listed Oil
Services 25 Index
(the “share underlying index”).
Pursuant to its investment strategy or otherwise, the Investment Advisor may add, delete or substitute the stocks
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
composing
the VanEck Vectors Oil Services
TM
ETF. Any of these actions could adversely affect the price of the OIH Shares and,
consequently, the value of the securities. Market Vectors is responsible for calculating and maintaining the share underlying index.
Market Vectors may add, delete or substitute the securities constituting the share underlying index or make other methodological
changes that could change the value of the share underlying index, and, consequently, the price of the OIH Shares and the value
of the securities. Market Vectors may discontinue or suspend calculation or publication of the share underlying index at any time.
In these circumstances, the calculation agent will have the sole discretion to substitute a successor index that is comparable
to the discontinued share underlying index and will be permitted to consider indices that are calculated and published by the calculation
agent or any of its affiliates.
|
§
|
The performance and market price of the OIH Shares, particularly during periods of market volatility, may not correlate
with the performance of the share underlying index, the performance of the component securities of the share underlying index or
the net asset value per share of the OIH Shares.
The OIH Shares do not fully replicate the share underlying index and
may hold securities that are different than those included in the share underlying index. In addition, the performance of
the OIH Shares will reflect additional transaction costs and fees that are not included in the calculation of the share underlying
index. All of these factors may lead to a lack of correlation between the performance of the OIH Shares and the share underlying
index. In addition, corporate actions (such as mergers and spin-offs) with respect to the equity securities underlying the
OIH Shares may impact the variance between the performance of the OIH Shares and the share underlying index. Finally, because
the shares of the OIH Shares are traded on an exchange and are subject to market supply and investor demand, the market price
of one share of the OIH Shares may differ from the net asset value per share of the OIH Shares.
|
In particular, during periods of
market volatility, or unusual trading activity, trading in the securities underlying the OIH Shares may be disrupted or limited,
or such securities may be unavailable in the secondary market. Under these circumstances, the liquidity of the OIH Shares
may be adversely affected, market participants may be unable to calculate accurately the net asset value per share of the OIH Shares,
and their ability to create and redeem shares of the OIH Shares may be disrupted. Under these circumstances, the market price of
shares of the OIH Shares may vary substantially from the net asset value per share of the OIH Shares or the level of the share
underlying index.
For all of the foregoing reasons,
the performance of the OIH Shares may not correlate with the performance of the share underlying index, the performance of the
component securities of the share underlying index or the net asset value per share of the OIH Shares. Any of these events
could materially and adversely affect the price of the shares of the OIH Shares and, therefore, the value of the securities. Additionally,
if market volatility or these events were to occur on the final observation date, the calculation agent would maintain discretion
to determine whether such market volatility or events have caused a market disruption event to occur, and such determination would
affect the payment at maturity of the securities. If the calculation agent determines that no market disruption event has
taken place, the payment at maturity would be based solely on the published closing price per share of the OIH Shares on the final
observation date, even if the OIH Shares are underperforming the share underlying index or the component securities of the share
underlying index and/or trading below the net asset value per share of the OIH Shares.
|
§
|
The price of crude oil may change unpredictably and affect the price of the USO Units and the value of the securities in
unforeseen ways.
The price of the USO Units is affected by the price of light, sweet crude oil. The price of crude oil is subject
to volatile price movements over short periods of time and is generally affected by numerous factors, including:
|
|
o
|
demand for refined petroleum products by consumers, as well as the agricultural, manufacturing and transportation industries;
|
|
o
|
economic conditions that affect the end-use of crude oil as a refined product such as transport fuel, industrial fuel and in-home
heating fuel;
|
|
o
|
supply disruptions in major oil producing regions of the world, production decisions by OPEC and other crude oil producers
and cessation of hostilities that may exist in countries producing oil;
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
|
o
|
U.S. government regulations, such as environmental or consumption policies;
|
|
o
|
geopolitical events, labor activity and direct government intervention such as embargos;
|
|
o
|
sudden disruptions in the supply of oil due to war, natural events, accidents or acts of terrorism; and
|
|
o
|
the introduction of new or previously withheld supplies into the market or the introduction of substitute products or commodities.
|
|
§
|
The performance of the USO Units may not fully replicate the performance of the price of light, sweet crude oil.
United
States Commodity Funds, LLC, the general partner of the United States Oil Fund, LP, is responsible for investing the assets of
the United States Oil Fund, LP in accordance with the objectives and policies of the United States Oil Fund, LP. The assets of
the United States Oil Fund, LP consist primarily of investments in futures contracts for light, sweet crude oil, other types of
crude oil, heating oil, gasoline, natural gas, and other petroleum-based fuels that are traded on the New York Mercantile Exchange,
ICE Futures or other U.S. and foreign exchanges (collectively, “oil futures contracts”) and other oil interests such
as cash-settled options on oil futures contracts, forward contracts for oil, and over-the-counter transactions that are based on
the price of oil, other petroleum-based fuels, oil futures contracts and indices based on the foregoing (collectively, “other
oil interests,” and together with oil futures contracts, “oil interests”). The United States Oil Fund, LP seeks
to achieve its investment objective by investing in a mix of oil futures contracts and other oil interests such that changes in
the net asset value of the United States Oil Fund, LP will closely track the changes in the price of a specified oil futures contract
(the “benchmark oil futures contract”). The United States Oil Fund, LP’s general partner believes that the benchmark
oil futures contract historically has exhibited a close correlation with the spot price of light, sweet crude oil. However, there
is no assurance that the general partner of the United States Oil Fund, LP will successfully implement its investment strategy
and there is a risk that changes in the price of United States Oil Fund, LP units will not closely track changes in the spot price
of light, sweet crude oil. The performance of the United States Oil Fund, LP may not exactly replicate the performance of the oil
interests underlying the United States Oil Fund, LP, because the United States Oil Fund, LP will reflect transaction costs and
fees. It is also possible that the United States Oil Fund, LP may not fully replicate or may in certain circumstances diverge significantly
from the performance of the oil interests underlying the United States Oil Fund, LP due to the temporary unavailability of certain
securities in the secondary market or the performance of any derivative instruments contained in the United States Oil Fund, LP.
This could also happen if the price of the units does not correlate closely with the United States Oil Fund, LP’s net asset
value; changes in the United States Oil Fund, LP’s net asset value do not closely correlate with changes in the price of
the benchmark oil futures contract; or changes in the price of the benchmark oil futures contract do not closely correlate with
changes in the cash or spot price of light, sweet crude oil. Light, sweet crude oil has also demonstrated a lack of correlation
with world crude oil prices due to structural differences between the United States market for crude oil and the international
market for crude oil. The price of light, sweet crude oil may be more volatile than world crude oil prices generally.
|
|
§
|
Investing in the securities is not equivalent to investing in any of the underlyings.
Investors in the securities will
not participate in any appreciation in any of the underlyings, and will not have voting rights or rights to receive dividends or
other distributions or any other rights with respect to the OIH Shares, the USO Units or any of their constituents.
|
|
§
|
Hedging and trading activity by our subsidiaries could potentially affect the value of the securities.
One or more of
our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related to the securities
(and to other instruments linked to the underlyings and their constituents), including trading in the underlyings. As a result,
these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Some of our affiliates also
trade the underlyings and other financial instruments related to the underlyings and their constituents on a regular basis as part
of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to September 22, 2016
could have increased the initial price of either of the underlyings, and, therefore, could have increased (i) the price at or above
which such underlying 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) and (ii) the downside threshold level
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
for such underlying, which is the
price at or above which such underlying 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), and, with respect to the final observation date, so
that you are not exposed to the negative performance of the worst performing underlying at maturity (depending also on the performance
of the other underlying). Additionally, such hedging or trading activities during the term of the securities could potentially
affect the value of either of the underlyings 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.
|
§
|
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 prices and the downside threshold levels,
and will determine the final 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 or calculation of the determination closing price
in the event of a market disruption event. 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” 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
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
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 September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
VanEck Vectors Oil Services
TM
ETF
Overview
The VanEck Vectors Oil Services
TM
ETF is an exchange-traded
fund that seeks to replicate, as closely as possible, the price and yield performance, before fees and expenses, of the MVIS
TM
U.S. Listed Oil Services 25 Index. The VanEck Vectors Oil Services
TM
ETF is managed by VanEck Vectors
®
ETF Trust (the “Trust”), a registered investment company that consists of numerous separate investment portfolios,
including the VanEck Vectors Oil Services
TM
ETF. Information provided to or filed with the Securities and Exchange Commission
(“the Commission”) by the Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be
located by reference to Commission file numbers 333-123257 and 811-10325, respectively, through the Commission’s website
at.www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper
articles and other publicly disseminated documents.
Neither the issuer nor the agent makes any representation that such publicly
available documents or any other publicly available information regarding the VanEck Vectors Oil Services
TM
ETF is accurate
or complete.
Information as of market close on September 23, 2016:
Bloomberg Ticker Symbol:
|
OIH
|
Current Price:
|
$26.65
|
52 Weeks Ago:
|
$28.59
|
52 Week High (on 11/3/2015):
|
$32.54
|
52 Week Low (on 1/20/2016):
|
$21.35
|
The following graph sets forth the daily closing
values of the OIH Shares for the period from December 20, 2011 through September 23, 2016. The related table sets forth the published
high and low closing prices, as well as the end-of-quarter closing prices, of the OIH Shares for each quarter in the same period.
The closing price of the OIH Shares on September 23, 2016 was $26.65. We obtained the information in the table and graph below
from Bloomberg Financial Markets, without independent verification. The historical closing prices of the OIH Shares should not
be taken as an indication of future performance, and no assurance can be given as to the price of the OIH Shares at any time, including
the redemption determination dates or the observation dates.
VanEck Vectors Oil Services
TM
ETF – Daily Closing Prices
December 20, 2011 to September 23, 2016
|
|
* The red solid line indicates the downside
threshold level of $13.76, which is 50% of the initial price.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
VanEck Vectors Oil Services
TM
ETF (CUSIP:
92189F718
)
|
High ($)
|
Low ($)
|
Period End ($)
|
2011
|
|
|
|
Fourth Quarter (from December 20, 2011)
|
38.82
|
37.71
|
38.28
|
2012
|
|
|
|
First Quarter
|
44.69
|
38.89
|
40.62
|
Second Quarter
|
41.23
|
33.06
|
35.64
|
Third Quarter
|
43.36
|
35.34
|
40.20
|
Fourth Quarter
|
41.48
|
36.61
|
38.68
|
2013
|
|
|
|
First Quarter
|
44.86
|
39.73
|
42.94
|
Second Quarter
|
45.66
|
39.68
|
42.78
|
Third Quarter
|
48.33
|
43.31
|
47.08
|
Fourth Quarter
|
50.82
|
46.82
|
48.07
|
2014
|
|
|
|
First Quarter
|
50.33
|
44.71
|
50.33
|
Second Quarter
|
57.76
|
49.04
|
57.76
|
Third Quarter
|
57.68
|
49.61
|
49.61
|
Fourth Quarter
|
48.20
|
33.97
|
35.92
|
2015
|
|
|
|
First Quarter
|
36.84
|
31.73
|
33.71
|
Second Quarter
|
39.04
|
33.97
|
34.90
|
Third Quarter
|
33.87
|
26.61
|
27.48
|
Fourth Quarter
|
32.54
|
25.72
|
26.45
|
2016
|
|
|
|
First Quarter
|
27.91
|
21.35
|
26.61
|
Second Quarter
|
30.87
|
25.45
|
29.25
|
Third Quarter (through September 23, 2016)
|
30.05
|
26.32
|
26.65
|
This document relates only to the securities referenced hereby
and does not relate to the OIH Shares. We have derived all disclosures contained in this document regarding the Trust from the
publicly available documents described above. 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 the Trust. Neither we nor the agent makes
any representation that such publicly available documents or any other publicly available information regarding the Trust 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 above) that would affect the trading price
of the OIH Shares (and therefore the price of the OIH Shares 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 the Trust
could affect the value received with respect to the securities and therefore the value of the securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the OIH Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or
more of our affiliates may publish research reports with respect to the OIH Shares. The statements in the preceding two sentences
are not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the
securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate to make an informed
decision with respect to an investment linked to the OIH Shares.
Market Vectors
SM
is a service mark of Van Eck Associates
Corporation (“Van Eck”). The securities are not sponsored, endorsed, sold, or promoted by Van Eck. Van Eck makes no
representations or warranties to the owners of the securities
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
or any member of the public regarding the advisability of investing
in the securities. Van Eck has no obligation or liability in connection with the operation, marketing, trading or sale of the securities.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
The United States Oil Fund, LP Overview
The United States Oil Fund, LP is a Delaware limited partnership
organized in 2005. The United States Oil Fund, LP is a commodity pool that issues limited partnership interests, or units, which
are traded on the NYSE Arca, Inc. The net assets of the United States Oil Fund, LP consist primarily of investments in futures
contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based
fuels. Its investment objective is to have the changes in percentage terms of the units’ net asset value reflect the changes
in percentage terms of the spot price of light, sweet crude oil as measured by the daily changes in the price of futures contracts
of light, sweet crude oil as traded on the New York Mercantile Exchange. The USO Units are registered under the Securities Exchange
Act of 1934, as amended. Information provided to or filed with the Securities and Exchange Commission by the United States Oil
Fund, LP pursuant to the Securities Exchange Act of 1934, as amended, can be located by reference to the Securities and Exchange
Commission file number 001-32834 through the Securities and Exchange Commission’s website at
.
www.sec.gov.
In addition, information regarding the United States Oil Fund, LP 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 USO
Units is accurate or complete.
Information as of market close on September 23, 2016:
Bloomberg Ticker Symbol:
|
USO
|
52 Week High (on 10/8/2015):
|
$16.04
|
Current Price:
|
$10.19
|
52 Week Low (on 2/10/2016):
|
$7.96
|
52 Weeks Ago:
|
$14.44
|
|
|
The following graph sets forth the daily closing price of the
USO Units for the period from January 1, 2011 through September 23, 2016. The related table sets forth the published high and low
closing prices, as well as the end-of-quarter closing prices, of the USO Units for each quarter in the same period. The closing
price of the USO Units on September 23, 2016 was $10.19. We obtained the information in the table and graph below from Bloomberg
Financial Markets, without independent verification. The historical closing prices of the USO Units should not be taken as an indication
of future performance, and no assurance can be given as to the price of the USO Units at any time, including the redemption determination
dates or the observation dates.
USO Units – Daily Closing Prices
January 1, 2011 to September 23, 2016
|
|
* The red solid line indicates the downside
threshold level of $5.265, which is 50% of the initial price.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities
United
States Oil Fund, LP
|
High
($)
|
Low
($)
|
Period
End ($)
|
2011
|
|
|
|
First Quarter
|
42.58
|
35.39
|
42.58
|
Second Quarter
|
45.15
|
35.64
|
37.26
|
Third Quarter
|
38.94
|
30.50
|
30.50
|
Fourth Quarter
|
39.34
|
29.74
|
38.11
|
2012
|
|
|
|
First Quarter
|
42.01
|
37.13
|
39.23
|
Second Quarter
|
40.15
|
29.46
|
31.82
|
Third Quarter
|
36.84
|
31.43
|
34.13
|
Fourth Quarter
|
34.29
|
31.21
|
33.36
|
2013
|
|
|
|
First Quarter
|
35.49
|
32.40
|
34.76
|
Second Quarter
|
34.96
|
31.01
|
34.15
|
Third Quarter
|
39.36
|
34.67
|
36.85
|
Fourth Quarter
|
37.42
|
33.19
|
35.32
|
2014
|
|
|
|
First Quarter
|
37.52
|
32.81
|
36.59
|
Second Quarter
|
39.32
|
35.80
|
38.88
|
Third Quarter
|
38.86
|
34.19
|
34.43
|
Fourth Quarter
|
34.37
|
20.30
|
20.36
|
2015
|
|
|
|
First Quarter
|
19.89
|
15.96
|
16.84
|
Second Quarter
|
20.82
|
17.56
|
19.88
|
Third Quarter
|
19.10
|
12.49
|
14.68
|
Fourth Quarter
|
16.04
|
10.66
|
11.00
|
2016
|
|
|
|
First Quarter
|
10.98
|
7.96
|
9.70
|
Second Quarter
|
12.43
|
9.08
|
11.57
|
Third Quarter (through September 23, 2016)
|
11.78
|
9.33
|
10.19
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019, With 1-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the VanEck Vectors Oil Services
TM
ETF and the United States Oil Fund, LP
Principal at Risk Securities