CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities Offered
|
|
Maximum
Aggregate Offering Price
|
|
Amount
of Registration Fee
|
Contingent Income Auto-Callable Securities due
2017
|
|
$5,085,410
|
|
$512.10
|
August 2016
Pricing Supplement
No. 1,029
Registration Statement
Nos. 333-200365; 333-200365-12
Dated August 19,
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
February 24, 2017
Based on the Performance of the Common Stock
of Freeport-McMoRan Inc.
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk
Securities
Contingent Income Auto-Callable Securities do not guarantee
the payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a contingent
monthly coupon at an annual rate of 17.25% (or a maximum return of approximately 8.625% over the 6-month term of the securities)
but only with respect to each determination date on which the determination closing price of the underlying stock is greater than
or equal to 60% of the initial share price, which we refer to as the downside threshold price. In addition, if the determination
closing price of the underlying stock is greater than or equal to the initial share price on any determination date, the securities
will be automatically redeemed for an amount per security equal to the stated principal amount and the contingent monthly coupon.
However, if the securities are not automatically redeemed prior to maturity, the payment at maturity due on the securities will
be as follows: (i) if the final share price is greater than or equal to the downside threshold price, the stated principal amount
and the contingent monthly coupon with respect to the final determination date, or (ii) if the final share price is less than
the downside threshold price, investors will be exposed to the decline in the underlying stock on a 1 to 1 basis and will receive
a payment at maturity that is less than 60% of the principal amount of the securities and could be zero. Moreover, if on any determination
date the determination closing price of the underlying stock is less than the downside threshold price, you will not receive any
contingent monthly coupon for that monthly period. As a result, investors must be willing to accept the risk of not receiving
any contingent monthly coupons and also the risk of receiving a payment at maturity that is significantly less than the stated
principal amount of the securities and could be zero.
Accordingly, investors could lose their entire initial investment in
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 few or no contingent monthly coupons over the 6-month
term of the securities. Investors will not participate in any appreciation of the underlying stock. The securities are unsecured
obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley.
The securities are 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 stock:
|
Freeport-McMoRan Inc. common stock
|
Aggregate principal amount:
|
$5,085,410
|
Stated principal amount:
|
$10 per security
|
Issue price:
|
$10 per security
|
Pricing date:
|
August 19, 2016
|
Original issue date:
|
August 24, 2016 (3 business days after the pricing date)
|
Maturity date:
|
February 24, 2017
|
Early redemption:
|
If, on any of the first five determination dates, the determination closing price of the underlying stock is
greater than or equal to
the initial share price, the securities will be automatically redeemed for an early redemption payment on the third business day following the related determination date. No further payments will be made on the securities once they have been redeemed.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount
plus
(ii) the contingent monthly coupon with respect to the related determination date.
|
Determination closing price:
|
The closing price of the underlying stock on any determination date other than the final determination date
times
the adjustment factor on such determination date.
|
Contingent monthly coupon:
|
·
If,
on any determination date, the determination closing price or the final share price, as applicable, is greater than or equal to
the downside threshold price, we will pay a contingent monthly coupon at an annual rate of 17.25% (corresponding to approximately
$0.14375 per month per security) on the related contingent payment date.
·
If,
on any determination date, the determination closing price or the final share price, as applicable, is less than the downside
threshold price, no contingent monthly coupon will be paid with respect to that determination date.
|
Determination dates:
|
September 19, 2016, October 19, 2016, November 21, 2016, December 19, 2016, January 19, 2017 and February 21, 2017, subject to postponement for non-trading days and certain market disruption events. We also refer to February 21, 2017 as the final determination date.
|
Contingent payment dates:
|
With respect to each determination date other than the final determination date, the third business day after the related determination date. The payment of the contingent monthly coupon, if any, with respect to the final determination date will be made on the maturity date.
|
Payment at maturity:
|
·
If
the final share price is
greater than or equal to
the downside threshold price:
·
If
the final share price is
less than
the downside threshold price:
|
(i) the stated principal amount
plus
(ii) the
contingent monthly coupon with respect to the final determination date
(i) the stated principal amount
multiplied by
(ii) the share performance factor
|
Share performance factor:
|
Final share price
divided
by the initial share price
|
Adjustment factor:
|
1.0, subject to adjustment in the event of certain corporate events affecting the underlying stock
|
Downside threshold price:
|
$7.182, which is equal to 60% of the initial share price
|
Initial share price:
|
$11.97, which is equal to the closing price of the underlying stock on the pricing date
|
Final share price:
|
The closing price of the underlying stock on the final determination date
times
the adjustment factor on such date
|
CUSIP:
|
61766B861
|
ISIN:
|
US61766B8616
|
Listing:
|
The securities will not be listed on any securities exchange.
|
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:
|
$9.832 per security. See “Investment Summary” beginning on page 2.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions and fees
|
Proceeds to us
(3)
|
Per security
|
$10
|
$0.075
(1)
|
|
|
|
$0.05
(2)
|
$9.875
|
Total
|
$5,085,410
|
$63,567.63
|
$5,021,842.37
|
|
|
|
|
|
|
|
(1)
|
Selected dealers,
including Morgan Stanley Wealth Management (an affiliate of the agent), and their financial
advisors will collectively receive from the agent, MS & Co., a fixed sales commission
of $0.075 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)
|
Reflects a structuring
fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05
for each security.
|
|
(3)
|
See “Use
of proceeds and hedging” on page 18.
|
The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 7.
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 February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
The Contingent Income Auto-Callable Securities due February 24,
2017 Based on the Performance of the Common Stock of Freeport-McMoRan Inc., which we refer to as the securities, provide an opportunity
for investors to earn a contingent monthly coupon at an annual rate of 17.25% (or a maximum return of approximately 8.625% over
the 6-month term of the securities) with respect to each monthly determination date on which the determination closing price or
the final share price, as applicable, is greater than or equal to 60% of the initial share price, which we refer to as the downside
threshold price. It is possible that the closing price of the underlying stock could remain below the downside threshold price
for extended periods of time or even throughout the term of the securities so that you may receive few or no contingent monthly
coupons. If the determination closing price is greater than or equal to the initial share price on any of the first five determination
dates, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount
plus
the contingent monthly coupon with respect to the related determination date. If the securities have not previously been redeemed
and the final share price is greater than or equal to the downside threshold price, the payment at maturity will also be the sum
of the stated principal amount and the contingent monthly coupon with respect to the related determination date. However, if the
securities have not previously been redeemed and the final share price is less than the downside threshold price, investors will
be exposed to the decline in the closing price of the underlying stock, as compared to the initial share price, on a 1 to 1 basis.
In this case, the payment at maturity will be less than 60% of the stated principal amount of the securities and could be zero.
Investors in the securities must be willing to accept the risk of losing their entire principal and also the risk of not receiving
any contingent monthly coupon. In addition, investors will not participate in any appreciation of the underlying stock.
The original issue price of each security is $10. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $10. We estimate that the value of each security on the
pricing date is $9.832.
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 stock. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying stock, instruments based on the underlying stock, 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 monthly coupon rate and the downside threshold price, 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 underlying stock, 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 2 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 stock, 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 February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
monthly coupon at an annual rate of 17.25% (or a maximum return of approximately 8.625% over the 6-month term of the securities)
with respect to each determination date on which the determination closing price or the final share price, as applicable, is greater
than or equal to 60% of the initial share price, which we refer to as the downside threshold price. The securities may be redeemed
prior to maturity for the stated principal amount per security
plus
the applicable contingent monthly coupon, and the payment
at maturity will vary depending on the final share price, as follows:
Scenario 1
|
On any of the first five determination dates, the
determination closing price is
greater than or equal to
the initial share price.
§
The
securities will be automatically redeemed for (i) the stated principal amount plus (ii) the contingent monthly coupon with respect
to the related determination date.
§
Investors
will not participate in any appreciation of the underlying stock from the initial share price.
|
Scenario 2
|
The securities are not automatically redeemed prior
to maturity, and the final share price is
greater than or equal to
the downside threshold price.
§
The
payment due at maturity will be (i) the stated principal amount plus (ii) the contingent monthly coupon with respect to the final
determination date.
§
Investors
will not participate in any appreciation of the underlying stock from the initial share price.
|
Scenario 3
|
The securities are not automatically redeemed prior
to maturity, and the final share price is
less than
the downside threshold price.
§
The
payment due at maturity will be equal to (i) the stated principal amount multiplied by (ii) the share performance factor.
Investors
will lose a significant portion, and may lose all, of their principal in this scenario.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan 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 price and (2) the final share price.
Diagram #1: First Five Determination Dates
Diagram #2: Payment at Maturity if No Automatic
Early Redemption Occurs
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Hypothetical Examples
The below examples are based on the following terms:
Hypothetical Initial Share Price:
|
$12.00
|
Hypothetical Downside Threshold Price:
|
$7.20, which is 60% of the hypothetical initial share price
|
Hypothetical Adjustment Factor:
|
1.0
|
Contingent Monthly Coupon:
|
17.25% per annum (corresponding to approximately $0.14375 per month per security)
1
|
Stated Principal Amount:
|
$10 per security
|
1 The actual contingent monthly 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 monthly coupon of $0.14375 is used in these examples for ease of analysis.
In Examples 1 and 2, the closing price of the underlying stock
fluctuates over the term of the securities and the determination closing price of the underlying stock is greater than or equal
to the hypothetical initial share price of $12.00 on one of the first five determination dates. Because the determination closing
price is greater than or equal to the initial share price on one of the first five determination dates, the securities are automatically
redeemed following the relevant determination date. In Examples 3 and 4, the determination closing price on the first five determination
dates is less than the initial share price, and, consequently, the securities are not automatically redeemed prior to, and remain
outstanding until, maturity.
|
Example 1
|
Example 2
|
Determination Dates
|
Hypothetical Determination Closing Price
|
Contingent Monthly Coupon
|
Early Redemption Amount*
|
Hypothetical Determination Closing Price
|
Contingent Monthly Coupon
|
Early Redemption Amount
|
#1
|
$3.90
|
$0
|
N/A
|
$11.15
|
$0.14375
|
N/A
|
#2
|
$12.00
|
—*
|
$10.14375
|
$6.85
|
$0
|
N/A
|
#3
|
N/A
|
N/A
|
N/A
|
$8.50
|
$0.14375
|
N/A
|
#4
|
N/A
|
N/A
|
N/A
|
$14.40
|
—*
|
$10.14375
|
#5
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
Final Determination Date
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
* The Early Redemption Amount includes the unpaid contingent
monthly coupon with respect to the determination date on which the determination closing price is greater than or equal to the
initial share price and the securities are redeemed as a result.
§
In
Example 1
, the securities are automatically redeemed following the second determination date, as the determination closing
price on the second determination date is equal to the initial share price. You receive the early redemption payment, calculated
as follows:
stated principal amount + contingent monthly
coupon = $10.00 + $0.14375 = $10.14375
In this example, the early redemption feature limits the
term of your investment to approximately 2 months, and you may not be able to reinvest at comparable terms or returns. If the securities
are redeemed early, you will stop receiving contingent coupons.
§
In
Example 2
, the securities are automatically redeemed following the fourth determination date, as the determination closing
price on the fourth determination date is greater than the initial share price. As the determination closing prices on the first,
third and fourth determination dates are greater than or equal to the downside threshold price, you receive the contingent coupon
of $0.14375 with respect to each such determination date. Following the fourth determination date, you receive an early redemption
amount of $10.14375, which includes the contingent monthly coupon with respect to the fourth determination date.
In this example, the early redemption feature limits the
term of your investment to approximately 4 months, and you may not be able to reinvest at comparable terms or returns. If the securities
are redeemed early, you will stop receiving contingent coupons. Further, although the underlying stock has appreciated by 20% from
its initial share price as of the fourth determination date, you receive only $10.14375 per security and do not benefit from such
appreciation.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
Example 3
|
Example 4
|
Determination Dates
|
Hypothetical Determination Closing Price / Final Share Price
|
Contingent Monthly Coupon
|
Early Redemption Amount*
|
Hypothetical Determination Closing Price / Final Share Price
|
Contingent Monthly Coupon
|
Early Redemption Amount
|
#1
|
$3.90
|
$0
|
N/A
|
$7.15
|
$0
|
N/A
|
#2
|
$6.85
|
$0
|
N/A
|
$3.70
|
$0
|
N/A
|
#3
|
$5.25
|
$0
|
N/A
|
$6.10
|
$0
|
N/A
|
#4
|
$6.60
|
$0
|
N/A
|
$4.05
|
$0
|
N/A
|
#5
|
$6.80
|
$0
|
N/A
|
$6.05
|
$0
|
N/A
|
Final Determination Date
|
$6.00
|
$0
|
N/A
|
$8.40
|
—*
|
N/A
|
Payment at Maturity
|
$5.00
|
$10.14375
|
*The final contingent monthly coupon, if any, will be
paid at maturity.
Examples 3 and 4 illustrate the payment at maturity per security
based on the final share price.
§
In
Example 3
, the closing price of the underlying stock remains below the downside threshold price on every determination date.
As a result, you do not receive any contingent coupons during the term of the securities and, at maturity, you are fully exposed
to the decline in the closing price of the underlying stock. As the final share price is less than the downside threshold price,
investors will receive a payment at maturity equal to the stated principal amount multiplied by the share performance factor, calculated
as follows:
stated principal amount x share performance
factor = $10.00 x ($6.00 / $12.00) = $5.00
In this example, the payment at maturity is significantly
less than the stated principal amount.
§
In
Example 4
, the closing price of the underlying stock decreases to a final share price of $8.40. Although the final share price
is less than the initial share price, because the final share price is still not less than the downside threshold price, you receive
the stated principal amount plus a contingent monthly coupon with respect to the final determination date. Your payment at maturity
is calculated as follows:
$10.00 + $0.14375 = $10.14375
In this example, although the final share price represents
a 30% decline from the initial share price, you receive the stated principal amount per security plus the final contingent monthly
coupon, equal to a total payment of $10.14375 per security at maturity, because the final share price is not less than the downside
threshold price.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Risk Factors
The following is a non-exhaustive 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 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 the securities do not guarantee the payment of regular interest or the return of any of the principal amount
at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and if the final share price is
less than the downside threshold price, you will be exposed to the decline in the closing price of the underlying stock, as compared
to the initial share price, on a 1 to 1 basis and you will receive a payment that will be less than 60% of the stated principal
amount and could be zero.
|
|
§
|
You will not receive any contingent monthly coupon for any monthly period where the determination closing price is less
than the downside threshold price.
A contingent monthly coupon will be paid with respect to a monthly period only if the determination
closing price is greater than or equal to the downside threshold price. If the determination closing price remains below the downside
threshold price on each determination date over the term of the securities, you will not receive any contingent monthly coupons.
|
|
§
|
The contingent monthly coupon, if any, is based solely on the determination closing price or the final share price, as applicable.
Whether the contingent monthly coupon will be paid with respect to a determination date will be based on the determination closing
price or the final share price, as applicable. As a result, you will not know whether you will receive the contingent monthly coupon
until the related determination date. Moreover, because the contingent monthly coupon is based solely on the determination closing
price on a specific determination date or the final share price, as applicable, if such determination closing price or final share
price is less than the downside threshold price, you will not receive any contingent monthly coupon with respect to such determination
date, even if the closing price of the underlying stock was higher on other days during the term of the securities.
|
|
§
|
Investors will not participate in any appreciation in the price of the underlying stock.
Investors will not participate
in any appreciation in the price of the underlying stock from the initial share price, and the return on the securities will be
limited to the contingent monthly coupon, if any, that is paid with respect to each determination date on which the determination
closing price or the final share price, as applicable, is greater than or equal to the downside threshold price. It is possible
that the closing price of the underlying stock could be below the downside threshold price on most or all of the determination
dates so that you will receive few or no contingent monthly coupons. If you do not earn sufficient contingent monthly 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.
|
|
§
|
The automatic early redemption feature may limit the term of your investment to approximately one month. If the securities
are redeemed early, you may not be able to reinvest at comparable terms or returns.
The term of your investment in the securities
may be limited to as short as approximately one month by the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no more contingent monthly 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.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors will influence the value of the securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market. Although we expect that generally the closing price of the underlying stock on any day will affect the value of the securities
more than any other single factor, other factors that may influence the value of the securities include:
|
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying stock,
|
|
o
|
whether the determination closing price has been below the downside threshold price on any determination date,
|
|
o
|
dividend rates on the underlying stock,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
time remaining until the securities mature,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stock
and which may affect the final share price of the underlying stock,
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
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.
|
The price of the underlying stock may be, and has
recently been, volatile, and we can give you no assurance that the volatility will lessen. See “Freeport-McMoRan Inc. Overview”
below. You may receive less, and possibly significantly less, than the stated principal amount per security if you try to sell
your securities prior to maturity.
|
§
|
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 contingent payment date, upon automatic redemption or at maturity, and therefore you are subject to our credit risk. If
we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment.
As a result, the market value of the securities prior to maturity will be affected by changes in the market’s view of our
creditworthiness. Any actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market
for taking our credit risk is likely to adversely affect the market value of the securities.
|
|
§
|
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.
|
|
§
|
Investing in the securities is not equivalent to investing in the common stock of Freeport-McMoRan Inc.
Investors in
the securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect
to the underlying stock.
|
|
§
|
No affiliation with Freeport-McMoRan Inc.
Freeport-McMoRan Inc. is not an affiliate of ours, is not involved with this
offering in any way, and has 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 Freeport-McMoRan Inc. in connection with this offering.
|
|
§
|
We may engage in business with or involving Freeport-McMoRan Inc. without regard to your interests.
We or our affiliates
may presently or from time to time engage in business with Freeport-McMoRan Inc. without regard to your interests and thus may
acquire non-public information about Freeport-McMoRan 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 Freeport-McMoRan Inc., which may or may not recommend that investors buy or hold the underlying stock.
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying stock.
MS & Co., as calculation agent, will adjust the adjustment factor for certain corporate events affecting
the underlying stock, such as stock splits and stock dividends, and certain other corporate actions involving the issuer of the
underlying stock, such as mergers. However, the calculation agent will not make an adjustment for every corporate event that can
affect the underlying stock. For example, the calculation agent is not required to make any adjustments if the issuer of the underlying
stock or anyone else makes a partial tender or partial exchange offer for the underlying stock, nor will adjustments be made following
the final determination date. If an event occurs that does not require the calculation agent to adjust the adjustment factor, 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.
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
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 2 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 stock, 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 adversely 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 stock), including trading in the underlying stock. 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 determination date approaches. Some of our affiliates also
trade the underlying stock and other financial instruments related to the underlying stock on a regular basis as part of their
general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could have
increased the initial share price, and, as a result, could have increased the downside threshold price, which is the price at or
above which the underlying stock must close on each determination date in order for you to earn a contingent monthly coupon, and,
if the securities are not called prior to maturity, in order for you to avoid being exposed to the negative price performance of
the underlying stock at maturity. Additionally, such hedging or trading activities during the term of the securities could potentially
affect the price of the underlying stock on the determination dates, and, accordingly, whether the securities are automatically
called prior to maturity, and, if the securities are not called prior to maturity, the payout to you 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 share price and the downside threshold price,
and will determine the final share price, whether the contingent monthly coupon will be paid on each contingent payment date, whether
the securities will be redeemed following any determination date, whether a market disruption event has occurred, whether to make
any adjustments to the adjustment factor and the payment that you will receive upon an automatic early redemption or at maturity,
if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise
discretion and make subjective judgments, such as with respect to the occurrence or nonoccurrence of market disruption events and
certain adjustments to the adjustment factor. 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.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
§
|
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. For example, under one possible treatment, the IRS could seek to
recharacterize the securities as short-term debt instruments, in which case the timing and character of income or loss on the securities
might differ from the tax treatment described herein. 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 February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Freeport-McMoRan Inc. Overview
Freeport-McMoRan Inc. is a copper, gold and molybdenum mining
company. The underlying 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 Freeport-McMoRan Inc. pursuant to the Exchange
Act can be located by reference to the Securities and Exchange Commission file number 001-11307-01 through the Securities and Exchange
Commission’s website at .www.sec.gov. In addition, information regarding Freeport-McMoRan 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 underlying stock is accurate or complete.
Information as of market close on August 19, 2016:
Bloomberg Ticker Symbol:
|
FCX
|
Exchange:
|
NYSE
|
Current Stock Price:
|
$11.97
|
52 Weeks Ago:
|
$9.73
|
52 Week High (on 4/29/2016):
|
$14.00
|
52 Week Low (on 1/13/2016):
|
$3.74
|
Current Dividend Yield:
|
N/A
|
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the underlying stock for each quarter from January 1, 2013 through August 19, 2016. The closing
price of the underlying stock on August 19, 2016 was $11.97. The associated graph shows the closing prices of the underlying stock
for each day from January 1, 2011 through August 19, 2016.
Freeport-McMoRan Inc. announced
a two-for-one stock split on December 9, 2010, and its common stock began trading on a split-adjusted basis on February 2, 2011.
The closing prices of the underlying stock prior to February 2, 2011 have been adjusted to reflect the stock split. We obtained
the information in the table and graph below from Bloomberg Financial Markets without independent verification. The historical
performance of the underlying stock should not be taken as an indication of its future performance, and no assurance can be given
as to the price of the underlying stock at any time, including on the determination dates.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Common Stock of Freeport-McMoRan Inc. (CUSIP 35671D857)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2013
|
|
|
|
First Quarter
|
36.09
|
31.40
|
0.3125
|
Second Quarter
|
33.76
|
26.82
|
0.3125
|
Third Quarter
|
34.60
|
27.34
|
0.3125
|
Fourth Quarter
|
37.74
|
32.88
|
0.3125
|
2014
|
|
|
|
First Quarter
|
37.63
|
30.64
|
0.3125
|
Second Quarter
|
36.50
|
32.56
|
0.3125
|
Third Quarter
|
39.04
|
32.40
|
0.3125
|
Fourth Quarter
|
32.49
|
21.03
|
0.3125
|
2015
|
|
|
|
First Quarter
|
23.55
|
16.81
|
0.3125
|
Second Quarter
|
23.66
|
18.26
|
0.05
|
Third Quarter
|
18.40
|
7.92
|
0.05
|
Fourth Quarter
|
13.49
|
6.12
|
0.05
|
2016
|
|
|
|
First Quarter
|
10.99
|
3.74
|
-
|
Second Quarter
|
14.00
|
8.85
|
-
|
Third Quarter (through August 19, 2016)
|
13.14
|
10.50
|
-
|
We make no representation as to the amount of dividends, if any,
that Freeport-McMoRan 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 Freeport-McMoRan Inc.
Common Stock
of Freeport-McMoRan Inc. – Daily Closing Prices
January 1,
2011 to August 19, 2016
|
|
*The red solid line indicates the downside threshold price of
$7.182, which is 60% of the initial share price.
This document relates only to the securities referenced
hereby and does not relate to the underlying stock or other securities of Freeport-McMoRan Inc. We have derived all disclosures
contained in this document regarding Freeport-McMoRan 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 Freeport-McMoRan Inc. Neither we nor the agent makes any representation
that such
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
publicly available documents or any other publicly available
information regarding Freeport-McMoRan 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 underlying stock (and therefore the price of the
underlying 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 Freeport-McMoRan 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 underlying stock.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan 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:
|
Monthly
|
Day count convention:
|
30/360
|
Record date:
|
The record date for each contingent payment date shall be the date one business day prior
to such scheduled contingent payment date; provided, however, that any contingent monthly coupon payable at maturity or upon
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:
|
Freeport-McMoRan Inc. The accompanying product supplement refers to the underlying
stock issuer as the “underlying company.”
|
Downside threshold price:
|
The accompanying product supplement refers to the downside threshold price as the “trigger
level.”
|
Postponement of maturity date:
|
If the scheduled final determination date is not a trading day or if a market disruption
event occurs on that day so that the final determination date is postponed and falls less than two business days prior to
the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following that
final determination date as postponed.
|
Postponement of contingent payment dates:
|
If a contingent payment date (including the maturity date) is postponed as a result of the
postponement of the relevant determination date, no adjustment shall be made to any contingent monthly coupon paid 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 (i) there occurs
any reclassification or change of the underlying stock, including, without limitation, as a result of the issuance of
any tracking stock by the underlying stock issuer, (ii) the underlying stock issuer or any surviving entity or subsequent
surviving entity of the 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 the underlying
stock issuer or any successor corporation with another corporation occurs (other than pursuant to clause (ii) above),
(iv) the underlying stock issuer is liquidated, (v) the underlying stock issuer issues to all of its shareholders equity
securities of an issuer other than the 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 the 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 determination date following the effective date of a reorganization event and prior to the final determination date:
If the exchange property value (as defined below) is greater than or equal to the initial share price, the securities
will be automatically redeemed for an early redemption payment.
·
Upon
the final determination 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 determination date is greater than or equal to the downside threshold price:
(i) the stated principal amount plus (ii) the contingent monthly coupon with respect to the final determination date
Ø
If
the exchange property value on the final determination date is less than the downside threshold price:
(i) the stated
principal amount multiplied by (ii) the share performance factor. For purposes of calculating the share performance factor,
the “final share price” will be deemed to equal the exchange property value on the final determination date.
Following the effective
date of a reorganization event, the contingent monthly coupon will be payable for each determination date on which the
exchange property value is greater than or equal to the downside threshold price.
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 price, “exchange
property value” means (x) for any cash received in any
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
reorganization event, the
value, as determined by the Calculation Agent, as of the date of receipt, of such cash received for one share of the 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 the 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 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 the 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 “the underlying stock” shall be deemed to refer to the
exchange property and references to a “share” or “shares” of the underlying stock shall be deemed
to refer to the 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 determination 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
the underlying stock, including, without limitation, a partial tender or exchange offer for the 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 the 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.
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Minimum ticketing size:
|
$1,000 / 100 securities
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
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;
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
·
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 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 securities sold, exchanged or settled. For this purpose, the
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
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 short-term capital gain or loss. 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. It is possible, for example, that a security could be treated
as a short-term debt instrument, with the result that the timing and character of income or loss on the securities might
differ from the tax treatment described above. The risk that financial instruments providing for buffers, triggers or
similar downside protection features, such as the securities, would be recharacterized as debt is greater than the risk
of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal
income tax treatments of the securities are possible, which, if applied, could significantly affect the timing and character
of the income or loss with respect to the securities. In 2007, the U.S. Treasury Department and the IRS released a notice
requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses on whether to require holders of “prepaid forward contracts” and similar instruments to
accrue income over the term of their investment. It also asks for comments on a number of related topics, including the
character of income or loss with respect to these instruments; whether short-term instruments should be subject to any
such accrual regime; the relevance of factors such as the exchange–traded status of the instruments and the nature
of the underlying property to which the instruments are linked; whether these instruments are or should be subject to
the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates. While it
is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially
and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders
should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities,
including possible alternative treatments and the issues presented by this notice.
Backup Withholding
and Information Reporting
Backup withholding may
apply in respect of payments on the securities and the payment of proceeds from a sale, exchange or other disposition
of the securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification
number and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under
the backup withholding rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s
U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. In
addition, information returns will be filed with the IRS in connection with payments on the securities and the payment
of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides proof of an
applicable exemption from the information reporting rules.
Tax Consequences to
Non-U.S. Holders
This section applies to
you only if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner
of a security that is for U.S. federal income tax purposes:
·
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
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 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. 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.
|
Use of proceeds and hedging:
|
The proceeds from the sale
of the securities will be used by us for general corporate purposes. We will receive, in aggregate, $10 per security issued,
because, when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty
will reimburse the cost of the agent’s commissions. The costs of the securities borne by you and described beginning
on page 2 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
stock and in futures and/or options contracts on the underlying stock. Such purchase activity could have increased the
initial share price, and, as a result, could have increased the downside threshold price, which is the price at or above
which the underlying stock must close on each determination date in order for you to earn a contingent monthly coupon,
and, if the securities are not redeemed prior to maturity, in order for you to avoid being exposed to the negative price
performance of the underlying stock at maturity. In addition, through our affiliates, we are likely to modify our hedge
position throughout the term of the securities, including on the determination dates, by purchasing and selling the underlying
stock, options contracts relating to the underlying stock or any other available securities or instruments that we may
wish to use in connection with such hedging activities. 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 determination date approaches. We cannot give any assurance that our hedging activities will
not affect the value of the underlying stock, and, therefore, adversely affect the value of the securities or the payment
you will receive at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds
and Hedging” in the accompanying product supplement for auto-callable securities.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Benefit plan investor considerations:
|
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 “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) 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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
|
(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.
|
Additional considerations:
|
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.
|
Supplemental information regarding plan of distribution; conflicts of interest:
|
The agent may distribute
the securities through Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer,
or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley
AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of ours. Selected dealers, including
Morgan Stanley Wealth Management, and their financial advisors will collectively receive from the agent, Morgan Stanley
& Co. LLC, a fixed sales commission of $0.075 for each security they sell. In addition, Morgan Stanley Wealth Management
will receive a structuring fee of $0.05 for each 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.
|
Validity of the securities:
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley,
when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee
pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated
herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding
obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability
(including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel
expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable
law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the
effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan
Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited
to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability
Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization,
execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding
nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such
counsel dated 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.
|
Contact:
|
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.
|
Where you can find more information:
|
Morgan Stanley and MSFL
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 Morgan Stanley and MSFL have filed with the SEC for more complete information
about Morgan Stanley, MSFL and this offering. You may get these documents without cost by visiting EDGAR on the SEC web
site at.www.sec.gov. Alternatively, Morgan Stanley, MSFL, any underwriter or any dealer participating in the offering
will arrange to send you the product supplement for auto-callable securities and prospectus 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:
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due February 24, 2017
Based on the Performance of the Common Stock of Freeport-McMoRan Inc.
Principal at Risk Securities
|
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From Aug 2024 to Sep 2024
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From Sep 2023 to Sep 2024