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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Morgan Stanley | NYSE:MS | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.94 | -0.94% | 99.58 | 100.41 | 99.4507 | 100.15 | 4,339,282 | 00:45:52 |
Title of Each Class of Securities Offered
|
Maximum Aggregate
Offering Price
|
Amount of Registration
Fee
|
||
Contingent Income Securities due 2019
|
$3,575,000
|
$360.00
|
September 2016
Pricing Supplement No. 1,077
Registration Statement Nos. 333-200365; 333-200365-12
Dated September 27, 2016
Filed pursuant to Rule 424(b)(2)
|
FINAL TERMS
|
|||
Issuer:
|
Morgan Stanley Finance LLC
|
||
Guarantor:
|
Morgan Stanley
|
||
Underlying stocks:
|
NIKE, Inc. common stock (the “NKE Stock”) and Under Armour, Inc. common stock (the “UA Stock”)
|
||
Aggregate principal amount:
|
$3,575,000
|
||
Stated principal amount:
|
$1,000 per security
|
||
Issue price:
|
$1,000 per security
|
||
Pricing date:
|
September 27, 2016
|
||
Original issue date:
|
September 30, 2016 (3 business days after the pricing date)
|
||
Maturity date:
|
September 30, 2019
|
||
Early redemption:
|
The securities are not subject to automatic early redemption until December 30, 2016
.
Following this initial 3-month non-call period, if, on any redemption determination date, beginning on the third scheduled business day preceding December 30, 2016
,
the determination closing price of
each underlying stock
is greater than or equal to its respective initial share price, the securities will be automatically redeemed for an early redemption payment on the related early redemption date. No further payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early on any early redemption date if the determination closing price of either underlying stock is below its respective initial share price on the related redemption determination date.
|
||
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the contingent monthly coupon with respect to the related observation date.
|
||
Determination closing price:
|
With respect to each underlying stock, the closing price of such underlying stock on any redemption determination date or observation date (other than the final observation date)
,
times
the adjustment factor on such determination date or observation date, as applicable
|
||
Redemption determination dates:
|
Monthly, on the third scheduled business day preceding each scheduled early redemption date, subject to postponement for non-trading days and certain market disruption events
|
||
Early redemption dates:
|
Starting on December 30, 2016, monthly, on the 30th day of each month (or, in the case of February, the last calendar day of such month);
provided
that if any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day
|
||
Contingent monthly coupon:
|
A
contingent
monthly coupon at an annual rate of 9.50% (corresponding to approximately $7.9167 per month per security) will be paid on the securities on each coupon payment date
but
only if
the determination closing price of
each underlying stock
is at or above its respective downside threshold level on the related observation date.
If, on any observation date, the determination closing price of either underlying stock is less than its respective downside threshold level, no contingent monthly coupon will be paid with respect to that observation date.
It is possible that one or both underlying stocks will remain below their respective downside threshold level(s) for extended periods of time or even throughout the entire 3-year term of the securities so that you will receive few or no contingent monthly coupons.
|
||
Downside threshold level:
|
With respect to the NKE Stock, $33.204, which is equal to 60% of its initial share price
With respect to the UA Stock, $23.514, which is equal to 60% of its initial share price
|
||
Payment at maturity:
|
If the securities are not redeemed prior to maturity, investors will receive a payment at maturity determined as follows:
·
If the final share price of
each underlying stock
is
greater than or equal to
its respective downside threshold level: (i) the stated principal amount
plus
(ii) the contingent monthly coupon with respect to the final observation date
·
If the final share price of
either underlying stock
is
less than
its respective downside threshold level: (i) the stated principal amount
multiplied by
(ii) the share performance factor of the worst performing underlying stock
Under these circumstances, the payment at maturity will be significantly less than the stated principal amount of $1,000, and will represent a loss of more than 40%, and possibly all, of your investment.
|
||
Terms continued on the following page
|
|||
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
||
Estimated value on the pricing date:
|
$945.70 per security. See “Investment Summary” beginning on page 3.
|
||
Commissions and issue price:
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to us
2)
|
Per security
|
$1,000
|
$35
|
$
965
|
Total
|
$3,575,000
|
$125,125
|
$3,449,875
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Terms continued from previous page:
|
|
Initial share price:
|
With respect to the NKE Stock, $55.34, which is its closing price on the pricing date
With respect to the UA Stock, $39.19, which is its closing price on the pricing date
|
Coupon payment dates:
|
Monthly, on the 30th day of each month (or, in the case of February, the last calendar day of such month), beginning October 30, 2016;
provided
that if any such day is not a business day, that coupon payment will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day;
provided further
that the contingent monthly coupon, if any, with respect to the final observation date shall be paid on the maturity date.
|
Observation dates:
|
The third scheduled business day preceding each scheduled coupon payment date, beginning with the
October 30, 2016 coupon payment date, subject, independently in the case of each underlying stock, to postponement for non-trading days and certain market disruption events. We also refer to September 25, 2019, which is the third scheduled business day preceding the scheduled maturity date, as the final observation date.
|
Final share price:
|
With respect to each underlying stock, the closing price of such underlying stock on the final observation date
times
the adjustment factor on such date
|
Adjustment factor:
|
With respect to each underlying stock, 1.0, subject to adjustment in the event of certain corporate events affecting such underlying stock
|
Worst performing underlying
stock:
|
The underlying stock with the larger percentage decrease from the respective initial share price to the respective final share price
|
Share performance factor:
|
Final share price
divided by
the initial share price
|
CUSIP / ISIN:
|
61768CAK3 / US61768CAK36
|
Listing:
|
The securities will not be listed on any securities exchange.
|
September 2016
|
Page
3
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
September 2016
|
Page
4
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Scenario 1: The securities are
redeemed prior to maturity
|
This scenario assumes that, prior to early redemption, both underlying stocks close at or above their respective downside threshold levels on some monthly observation dates, but one or both underlying stocks close below the respective downside threshold level(s) on the others. Investors receive the contingent monthly coupon for the monthly periods for which the determination closing prices of both underlying stocks are at or above their respective downside threshold levels on the related observation date, but not for the monthly periods for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date.
When both underlying stocks close at or above their respective initial share prices on a monthly redemption determination date (beginning after three months), the securities will be automatically redeemed for the stated principal amount
plus
the contingent monthly coupon with respect to the related observation date.
|
Scenario 2: The securities are
not redeemed prior to
maturity, and investors
receive principal back at
maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside threshold levels on some monthly observation dates, but one of both underlying stocks close below the respective downside threshold level(s) on the others, and at least one of the underlying stocks closes below its initial share price on every monthly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent monthly coupon for the monthly periods for which the determination closing prices of both underlying stocks are at or above their respective downside threshold levels on the related observation date, but not for the monthly periods for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date. On the final observation date, both underlying stocks close at or above their respective downside threshold levels. At maturity, in addition to the contingent monthly coupon with respect to the final observation date, investors will receive the stated principal amount.
|
September 2016
|
Page
5
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Scenario 3: The securities are
not redeemed prior to
maturity, and investors suffer
a substantial loss of principal
at maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside threshold levels on some monthly observation dates, but one or both underlying stocks close below the respective downside threshold level(s) on the others, and at least one of the underlying stocks closes below its initial share prices on every monthly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent monthly coupon for the monthly periods for which the determination closing prices of both underlying stocks are greater than or equal to their respective downside threshold levels on the related observation date, but not for the monthly periods for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date
.
On the final observation date, one or both underlying stocks close below the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor of the worst performing underlying stock. Under these circumstances, the payment at maturity will be less than 60% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
|
September 2016
|
Page
6
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
September 2016
|
Page
7
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
September 2016
|
Page
8
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Hypothetical Contingent
Monthly Coupon:
|
9.50% per annum (corresponding to approximately $7.9167 per month per security)
1
With respect to each coupon payment date, a contingent monthly coupon is paid but only if the determination closing price of each underlying stock is at or above its respective downside threshold level on the related observation date.
|
Payment at Maturity (if the
securities are not redeemed
prior to maturity):
|
If the final share price of
each
underlying stock is
greater than or equal to
its respective downside threshold level: the stated principal amount and the contingent monthly coupon with respect to the final observation date
If the final share price of
either
underlying stock is
less than
its respective downside threshold level: (i) the stated principal amount
multiplied by
(ii) the share performance factor of the worst performing underlying stock
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Share Price:
|
With respect to the NKE Stock: $50.00
With respect to the UA Stock: $40.00
|
Hypothetical Downside
Threshold Level:
|
With respect to the NKE Stock: $30.00, which is 60% of its hypothetical initial share price
With respect to the UA Stock: $24.00, which is 60% of its hypothetical initial share price
|
Determination Closing Price
|
Hypothetical Contingent
Monthly Coupon
|
||
NKE Stock
|
UA Stock
|
||
Hypothetical Observation
Date 1
|
$45.00 (
at or above
its
downside
threshold level)
|
$28.00 (
at or above
its
downside threshold
level)
|
$7.9167
|
Hypothetical Observation
Date 2
|
$25.00 (
below
its
downside threshold
level)
|
$26.00 (
at or above
its
downside threshold
level)
|
$0
|
Hypothetical Observation
Date 3
|
$33.00 (
at or above
its
downside
threshold level)
|
$15.00 (
below
its
downside threshold
level)
|
$0
|
Hypothetical Observation
Date 4
|
$20.00 (
below
its
downside threshold
level)
|
$20.00 (
below
its
downside threshold
level)
|
$0
|
September 2016
|
Page
9
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Final Share Price
|
Payment at Maturity
|
||
NKE Stock
|
UA Stock
|
||
Example 1:
|
$40.00 (
at or above
its
downside threshold level)
|
$36.00 (
at or above
its
downside threshold
level)
|
$1,007.9167 (the stated principal
amount
plus
the contingent
monthly coupon with respect to
the final observation date)
|
Example 2:
|
$20.00 (
below
its
downside threshold level)
|
$42.00 (
at or above
its
initial share price)
|
$1,000 x share performance
factor of the worst performing
underlying stock = $1,000 x
($20.00 / $50.00) = $400.00
|
Example 3:
|
$45.00 (
at or above
its
downside threshold level)
|
$20.00 (
below
its
downside threshold
level)
|
$1,000 x ($20.00 / $40.00) =
$500.00
|
Example 4:
|
$25.00 (
below
its
downside threshold level)
|
$14.00 (
below
its
downside threshold
level)
|
$1,000 x ($14.00 / $40.00) =
$350.00
|
Example 5:
|
$15.00 (
below
its
downside threshold level)
|
$14.00 (
below
its
downside threshold
level)
|
$1,000 x ($15.00 / $50.00 =
$300.00
|
September 2016
|
Page
10
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
§ |
The securities do not guarantee the return of any principal.
The terms of the securities differ from those of ordinary debt securities in that they do not guarantee the return of any of the principal amount at maturity. If the securities have not been automatically redeemed prior to maturity and if the final share price of either underlying stock is less than its downside threshold level of 60% of its initial share price, you will be exposed to the decline in the closing price of the worst performing underlying stock, as compared to the initial share price, on a 1
-
to
-
1 basis
,
and you will receive for each security that you hold at maturity an amount equal to the stated principal amount
times
the share performance factor of the worst performing underlying stock. In this case, the payment at maturity will be less than 60% of the stated principal amount and could be zero.
You could lose up to your entire investment in the securities.
|
§ |
The securities do not provide for the regular payment of interest and may pay no interest over the entire term of the securities.
The terms of the securities differ from those of ordinary debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent monthly coupon
but only if
the determination closing price of each underlying stock is
at or above
60% of its respective initial share price, which we refer to as the respective downside threshold level
,
on the related observation date. If, on the other hand, the determination closing price of
either
underlying stock is lower than its downside threshold level on the relevant observation date for any interest period, we will pay no coupon on the applicable coupon payment date. It is possible that the determination closing price of either underlying stock could remain below the respective downside threshold level for extended periods of time or even throughout the entire 3-year term of the securities so that you will receive few or no contingent monthly coupons. If you do not earn sufficient contingent coupons over the term of the securities, the overall return on the securities may be less than the amount that would be paid on a conventional debt security of ours of comparable maturity.
|
§ |
You are exposed to the price risk of both underlying stocks, with respect to both the contingent monthly coupons, if any, and the payment at maturity, if any.
Your return on the securities is not linked to a basket consisting of both underlying stocks
.
Rather, it will be contingent upon the independent performance of each underlying stock. Unlike an instrument with a return linked to a basket of underlying assets
,
in which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related to both underlying stocks. Poor performance by
either
underlying stock over the term of the securities may negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying stock. To receive
any
contingent monthly coupons,
both
underlying stocks must close at or above their respective downside threshold levels on the applicable observation date. In addition, if
either
underlying stock has declined to below its respective downside threshold level as of the final observation date, you will be
fully exposed
to the decline in the worst performing underlying stock over the term of the securities on a 1
-
to
-
1 basis, even if the other underlying stock has appreciated. Under this scenario, the payment at maturity will be less than 60% of the stated principal amount and could be zero. Accordingly, your investment is subject to the price risk of both underlying stocks
.
|
§ |
The contingent coupon, if any, is based only on the determination closing prices of the underlying stocks on the related monthly observation date at the end of the related interest period
.
Whether the contingent coupon will be paid on any coupon payment date will be determined at the end of the relevant interest period based on the determination closing price of each underlying stock on the relevant monthly observation date. As a result, you will not know whether you will receive the contingent coupon on any coupon payment date until near the end of the relevant interest period. Moreover, because the contingent coupon is based solely on the price of each underlying stock on monthly observation dates, if the determination closing price of either underlying stock on any observation date is below the respective downside threshold level, you will receive no coupon for the related interest period
,
even if the price(s) of one or both underlying stocks were higher on other days during that interest period.
|
September 2016
|
Page
12
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
§ |
Investors will not participate in any appreciation in the price of either underlying stock.
Investors will not participate in any appreciation in the price of either underlying stock from its initial share price, and the return on the securities will be limited to the contingent monthly coupon, if any, that is paid with respect to each observation date on which both determination closing prices are greater than or equal to their respective downside threshold levels, if any.
|
§ |
The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the securities in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary market. We expect that generally the level of interest rates available in the market and the prices of the underlying stocks on any day, including in relation to the respective downside threshold levels, will affect the value of the securities more than any other factors. Other factors that may influence the value of the securities include:
|
o |
the trading price and volatility (frequency and magnitude of changes in value) of the underlying stocks
,
|
o |
whether the determination closing price of either underlying stock has been below its respective downside threshold level on any observation date,
|
o |
dividend rates on the underlying stocks,
|
o |
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stocks and which may affect the prices of the underlying stocks
,
|
o |
the time remaining until the securities mature,
|
o |
interest and yield rates in the market,
|
o |
the availability of comparable instruments,
|
o |
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment factor, and
|
o |
any actual or anticipated changes in our credit ratings or credit spreads.
|
§ |
The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities on each coupon payment date, upon automatic redemption and at maturity and therefore you are subject to our credit risk. The securities are not guaranteed by any other entity. If we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.
|
§ |
As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets available for distributions to holders of MSFL securities if they make claims in respect
|
September 2016
|
Page
13
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
§ |
Reinvestment risk
.
The term of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities are redeemed prior to maturity, you will receive no more contingent 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. However, under no circumstances will the securities be redeemed in the first three months of the term of the securities.
|
§ |
Investing in the securities is not equivalent to investing in the common stock of NIKE, Inc. or the common stock of Under Armour, Inc.
Investors in the securities will not participate in any appreciation in the underlying stocks, and will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the underlying stocks
.
|
§ |
No affiliation with NIKE, Inc. or Under Armour, Inc.
NIKE, Inc. and Under Armour, Inc. are not affiliates of ours, are not involved with this offering in any way, and have no obligation to consider your interests in taking any corporate actions that might affect the value of the securities. We have not made any due diligence inquiry with respect to NIKE, Inc. or Under Armour, Inc. in connection with this offering.
|
§ |
We may engage in business with or involving NIKE, Inc. or Under Armour, Inc. without regard to your interests.
We or our affiliates may presently or from time to time engage in business with NIKE, Inc. or Under Armour, Inc. without regard to your interests and thus may acquire non-public information about NIKE, Inc. or Under Armour, 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 NIKE, Inc. or Under Armour, Inc., which may or may not recommend that investors buy or hold the underlying stock(s).
|
§ |
The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect the underlying stocks
.
MS & Co., as calculation agent, will adjust the adjustment factors for certain corporate events affecting the underlying stocks, such as stock splits and stock dividends, and certain other corporate actions involving the issuers of the underlying stocks, such as mergers. However, the calculation agent will not make an adjustment for every corporate event that can affect the underlying stocks. For example, the calculation agent is not required to make any adjustments if the issuers of the underlying stocks or anyone else makes a partial tender or partial exchange offer for the underlying stocks, nor will adjustments be made following the final observation date. If an event occurs that does not require the calculation agent to adjust the adjustment factors, the market price of the securities may be materially and adversely affected.
|
§ |
The securities will not be listed on any securities exchange and secondary trading may be limited, and accordingly, you should be willing to hold your securities for the entire 3-year term of the securities
.
The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS & Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities to maturity.
|
September 2016
|
Page
14
|
Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
§ |
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
|
§ |
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable factors” above.
|
§ |
Hedging and trading activity by our affiliates could potentially affect the value of the securities
.
One or more of our affiliates and/or third-party dealers have carried out, and will continue to carry out
,
hedging activities related to the securities (and to other instruments linked to the underlying stocks), including trading in the underlying stocks. Some of our affiliates also trade the underlying stocks and other financial instruments related to the underlying stocks on a regular basis as part of their general broker-dealer and other businesses. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Any of these hedging or trading activities on or prior to the pricing date could have increased the initial share price of an underlying stock, and, therefore, could have increased (i) the value at or above which such underlying stock must close on the redemption determination dates so that the securities are redeemed prior to maturity for the early redemption payment (depending also on the performance of the other underlying stock) and (ii) the downside threshold level for such underlying stock, which is the value at or above which the underlying stock must close on the observation dates so that you receive a contingent monthly coupon on the securities (depending also on the performance of the other underlying stock), and, with respect to the final observation date, so that you are not exposed to the negative performance of the worst performing underlying stock at maturity (depending also on the performance of the other underlying stock). Additionally, such hedging or trading activities during the term of the securities could potentially affect the value of either underlying stock on the redemption determination dates and the observation dates, and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent monthly coupon on the securities and the amount of cash you will receive at maturity, if any
.
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September 2016
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Page
15
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
§ |
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities
.
As calculation agent, MS & Co. has determined the initial share prices and the downside threshold levels and will determine the final share prices, the payment at maturity, if any, whether you receive a contingent monthly coupon on each coupon payment date and/or at maturity, whether the securities will be redeemed on any early redemption date, whether a market disruption event has occurred and whether to make any adjustments to the adjustment factors. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non
-
occurrence of market disruption events and certain adjustments to the adjustment factors. These potentially subjective determinations may affect the payout to you upon an automatic early redemption or at maturity, if any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares” and “—Calculation Agent and Calculations” and related definitions in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date
.
|
§ |
The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment of the securities are uncertain.
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September 2016
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Page
16
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Bloomberg Ticker Symbol:
|
NKE
|
Exchange:
|
NYSE
|
Current Stock Price:
|
$55.34
|
52 Weeks Ago:
|
$61.07
|
52 Week High (on 11/27/2015):
|
$67.17
|
52 Week Low (on 6/27/2016):
|
$51.89
|
Current Dividend Yield:
|
1.17%
|
Common Stock of NIKE, Inc. (CUSIP 654106103)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2013
|
|||
First Quarter
|
29.78
|
25.92
|
-
|
Second Quarter
|
32.96
|
29.13
|
0.10
|
Third Quarter
|
36.82
|
31.16
|
0.10
|
Fourth Quarter
|
39.93
|
35.14
|
0.10
|
2014
|
|||
First Quarter
|
39.82
|
35.26
|
0.12
|
Second Quarter
|
38.84
|
35.42
|
0.12
|
Third Quarter
|
44.75
|
38.18
|
0.12
|
Fourth Quarter
|
49.66
|
42.54
|
0.12
|
2015
|
|||
First Quarter
|
50.99
|
45.58
|
0.14
|
Second Quarter
|
54.86
|
49.28
|
0.14
|
Third Quarter
|
62.50
|
51.76
|
0.14
|
Fourth Quarter
|
67.17
|
60.93
|
0.14
|
2016
|
|||
First Quarter
|
64.90
|
55.04
|
0.16
|
Second Quarter
|
61.59
|
51.89
|
0.16
|
Third Quarter (through September 27, 2016)
|
60.22
|
54.40
|
-
|
September 2016
|
Page
17
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Common Stock of NIKE, Inc. – Daily Closing Prices
January 1, 2011 to September 27, 2016
|
September 2016
|
Page
18
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Bloomberg Ticker Symbol:
|
UA
|
Exchange:
|
NYSE
|
Current Stock Price:
|
$39.19
|
52 Weeks Ago:
|
$52.07
|
52 Week High (on 10/12/2015):
|
$53.39
|
52 Week Low (on 1/19/2016):
|
$34.67
|
Current Dividend Yield:
|
N/A
|
Common Stock of Under Armour, Inc. (
CUSIP
904311107)
|
High ($)
|
Low ($)
|
Dividends ($)
|
September 2016
|
Page
19
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
Common Stock of Under Armour, Inc. – Daily Closing Prices
January 1, 2011 to September 27, 2016
|
|
September 2016
|
Page
20
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
September 2016
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Page
21
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
coupon with respect to the final observation date
.
Ø
If the exchange property value on the final observation date is less than the respective downside threshold level, or if the final share price (or exchange property value, if applicable) of the other underlying stock is less than its downside threshold level:
Ø
If the worst performing underlying stock has not undergone a reorganization event as described in paragraph 5 above:
(i) the stated principal amount multiplied by (ii) the share performance factor of the worst performing underlying stock.
Ø
If the worst performing underlying stock has undergone a reorganization event as described in paragraph 5 above:
(i) the stated principal amount multiplied by (ii) the share performance factor of the worst performing underlying stock. For purposes of calculating the share performance factor, the “final share price” of the worst performing underlying stock will be deemed to equal the cash value, determined as of the final observation date, of the securities, cash or any other assets distributed to holders of the worst performing underlying stock in or as a result of any such reorganization event, including (A) in the case of the issuance of tracking stock, the reclassified share of such worst performing underlying stock, (B) in the case of a spin-off event, the share of such worst performing underlying stock with respect to which the spun-off security was issued, and (C) in the case of any other reorganization event where such worst performing underlying stock continues to be held by the holders receiving such distribution, such worst performing underlying stock (collectively, the “exchange property”), per share of such worst performing underlying stock times the adjustment factor for such worst performing underlying stock on the final observation date
.
Following the effective date of a reorganization event, the contingent monthly coupon will be payable for each observation date on which the exchange property value is greater than or equal to the downside threshold level and the determination closing price (or exchange property value, as applicable) of the other underlying stock is also greater than or equal to its downside threshold level
.
If exchange property includes a cash component, investors will not receive any interest accrued on such cash component. In the event exchange property consists of securities, those securities will, in turn, be subject to the antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not the exchange property value is less than the initial share price, or less than the downside threshold level, or for determining the worst performing underlying stock, “exchange property value” means (x) for any cash received in any reorganization event, the value, as determined by the calculation agent, as of the date of receipt, of such cash received for one share of such underlying stock, as adjusted by the adjustment factor at the time of such reorganization event, (y) for any property other than cash or securities received in any such reorganization event, the market value, as determined by the calculation agent in its sole discretion, as of the date of receipt, of such exchange property received for one share of such underlying stock, as adjusted by the adjustment factor at the time of such reorganization event and (z) for any security received in any such reorganization event, an amount equal to the determination closing price, as of the day on which the exchange property value is determined, per share of such security multiplied by the quantity of such security received for each share of such underlying stock, as adjusted by the adjustment factor at the time of such reorganization event.
For purposes of paragraph 5 above, in the case of a consummated tender or exchange offer or going-private transaction involving consideration of particular types, exchange property shall be deemed to include the amount of cash or other property delivered by the offeror in the tender or exchange offer (in an amount determined on the basis of the rate of exchange in such tender or exchange offer or going-private transaction). In the event of a tender or exchange offer or a going-private transaction with respect to exchange property in which an offeree may elect to receive cash or other property, exchange property shall be deemed to include the kind and amount of cash and other property received by offerees who elect to receive cash.
Following the occurrence of any reorganization event referred to in paragraph 5 above, all references in this offering document and in the related product supplement with respect to the securities to such “underlying stock” shall be deemed to refer to the exchange property and references to a “share” or “shares” of such underlying stock shall be deemed to refer to the
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September 2016
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Page
22
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
September 2016
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Page
23
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
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 amount realized does not include any coupon paid at settlement and may not include sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should be long-term capital gain or loss if the U.S. Holder has held the securities for more than
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September 2016
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Page
24
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
one year at the time of the sale, exchange or settlement, and
should be short-term capital gain or loss otherwise
.
The ordinary income treatment of the coupon payments, in conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse tax consequences to holders of the
securities
because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in the Securities
Due to the absence of authorities that directly address the proper tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities under
Treasury
regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the
securities
, the timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original issue
discount
on the
securities
every year at a “comparable yield” determined at the time of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on the
securities
. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
securities
would be treated as ordinary income, and
any
loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income tax treatments of the securities are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates. While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides 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-
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September 2016
|
Page
25
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax purposes:
·
an individual who is classified as a nonresident alien;
·
a foreign corporation; or
·
a foreign estate or trust.
The term “Non-U.S. Holder” does not include any of the following holders:
·
a holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income tax purposes;
·
certain former citizens or residents of the United States; or
·
a holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in the United States.
Such holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities.
Although significant
aspects of the tax treatment of each security are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person and is eligible for such an exemption or reduction under an applicable tax treaty.
If you are a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding tax and the certification requirement described above.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that, absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Legislation
Legislation commonly referred to as “FATCA” generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to certain 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
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September 2016
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Page
26
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
income”). Withholding (if applicable) applies to payments of U.S.-source FDAP income and, for dispositions after December 31, 2018, to payments of gross proceeds of the disposition (including upon retirement) of certain financial instruments treated as providing for U.S.-source interest or dividends. While the treatment of the securities is unclear, you should assume that any coupon payment with respect to the securities will be subject to the FATCA rules. It is also possible in light of this uncertainty that an applicable withholding agent will treat gross proceeds of a disposition (including upon retirement) of the securities after 2018 as being subject to the FATCA rules. If withholding applies to the securities, we will not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the securities.
The discussion in the preceding paragraphs, insofar as it purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
|
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
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, $1,000 per security issued, because, when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we hedged our anticipated exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers. We expect our hedging counterparties to have taken positions in the underlying stocks and in futures and/or options contracts on the underlying stocks. Such purchase activity could have increased the initial share price of an underlying stock, and, therefore, could have increased (i) the value at or above which such underlying stock must close on the redemption determination dates so that the securities are redeemed prior to maturity for the early redemption payment (depending also on the performance of the other underlying stock) and (ii) the downside threshold level for such underlying stock, which is the value at or above which the underlying stock must close on the observation dates so that you receive a contingent monthly coupon on the securities (depending also on the performance of the other underlying stock), and, with respect to the final observation date, so that you are not exposed to the negative performance of the underlying stock at maturity (depending also on the performance of the other underlying stock). These entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Additionally, our hedging activities, as well as our other trading activities, during the term of the securities could potentially affect the value of either underlying stock on the redemption determination dates and other observation dates
,
and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent monthly coupon on the securities and the amount of cash 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.
|
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
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September 2016
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
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;
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September 2016
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Page
28
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Morgan Stanley Finance LLC
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Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
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September 2016
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Page
29
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Morgan Stanley Finance LLC
|
Contingent Income
Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of NIKE, Inc. and the Common Stock of Under Armour, Inc.
Principal at Risk Securities
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Contact:
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Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
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Where you can find more information:
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MSFL and Morgan Stanley have filed a registration statement (including a prospectus, as supplemented by the product supplement for auto-callable securities) with the Securities and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, the product supplement for auto-callable securities and any other documents relating to this offering that MSFL and Morgan Stanley have filed with the SEC for more complete information about MSFL, Morgan Stanley and this offering. You may get these documents without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov. Alternatively, MSFL, Morgan Stanley, any underwriter or any dealer participating in the offering will arrange to send you the prospectus and the product supplement for auto-callable securities if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov as follows:
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Terms used but not defined in this document are defined in the product supplement for auto-callable securities or in the prospectus.
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September 2016
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Page
30
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