CALCULATION
OF REGISTRATION FEE
|
|
Maximum Aggregate |
|
Amount of Registration |
Title of Each Class of Securities Offered |
|
Offering
Price |
|
Fee |
Securities due 2020 |
|
$3,441,000 |
|
$346.51 |
|
September 2015
Pricing Supplement No. 533
Registration Statement No. 333-200365
Dated September 30, 2015
Filed pursuant to Rule 424(b)(2)
|
Structured Investments
Opportunities in U.S. and International Equities
and Commodities
Securities
Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed
Percentage Buffered Downside
Principal at Risk Securities
The securities are unsecured obligations of Morgan Stanley, will
pay no interest, provide for a payment at maturity that may be less than the face amount and have the terms described in the accompanying
product supplement for PLUS, index supplement and prospectus, as supplemented or modified by this document. At maturity, if the
basket has appreciated in value, investors will receive the face amount plus 150% participation in the upside performance of the
basket, subject to the capped value of $1,520 per security. If the basket has depreciated in value, but not by more than 15%, the
securities will redeem for the face amount. However, if the basket has depreciated in value by more than 15%, investors will receive
less than the face amount and have 1-to-1 downside exposure to the decrease in the level of the basket in excess of 15%. Investors
may lose up to 85% of the face amount of the securities. The securities are for investors who seek a funds-based return and
who are willing to risk their investment and forgo current income and upside above the capped value in exchange for the participation
rate and buffer features that in each case apply to a limited range of performance of the basket. The securities are notes issued
as part of Morgan Stanley’s Series F Global Medium-Term Notes program.
All payments are subject to the credit risk of Morgan Stanley.
If Morgan Stanley defaults on its 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, the basket or any securities held
by the basket components.
FINAL
TERMS |
|
Issuer:
|
Morgan Stanley |
Maturity
date: |
April 6, 2020, subject to postponement if
the calculation day is postponed |
Aggregate
face amount: |
$3,441,000 |
Basket: |
Basket component |
Bloomberg ticker symbol |
Basket component weighting |
Initial basket component value |
Multiplier |
|
Shares of the SPDR® S&P 500® ETF Trust (the “SPY Shares” ) |
SPY |
50% |
$191.63 |
0.260919480 |
|
|
|
|
|
|
|
Shares of the iShares® Russell 2000® ETF (the “IWM Shares”) |
IWM |
15% |
$109.20 |
0.137362637 |
|
|
|
|
|
|
|
Shares of the iShares® MSCI EAFE ETF (the “EFA Shares”) |
EFA |
15% |
$57.32 |
0.261688765 |
|
|
|
|
|
|
|
Shares of the iShares® MSCI Emerging Markets ETF (the “EEM Shares”) |
EEM |
10% |
$32.78 |
0.305064063 |
|
|
|
|
|
|
|
Shares of the PowerShares DB Commodity Index Tracking Fund (the “DBC Shares”) |
DBC |
5% |
$15.15 |
0.330033003 |
|
|
|
|
|
|
|
Shares of the Vanguard REIT ETF (the “VNQ Shares”) |
VNQ |
5% |
$75.54 |
0.066190098 |
|
|
|
|
|
|
|
The SPY Shares, the IWM Shares, the EFA Shares, the EEM Shares, the DBC Shares and the VNQ Shares are each referred to as a “basket component” and together as the “basket components.” |
Redemption
amount: |
At maturity, the redemption amount per $1,000 face amount of
securities will be determined as follows:
· If
the ending level is greater than the starting level, the lesser of:
(ii) the capped value.
· If
the ending level is less than or equal to the starting level, but greater than or equal to the threshold level:
$1,000
· If
the ending level is less than the threshold level:
If the ending level is less than the threshold
level, you will receive less, and up to 85% less, than the face amount of your securities at maturity.
Notwithstanding anything to the contrary in the accompanying
product supplement for PLUS, the amount you will receive at maturity will be the redemption amount, defined and calculated as provided
in this document.
|
Participation
rate: |
150% |
Starting
level: |
100, which is equal to the sum of the products of the initial basket component value of each of the basket components on the pricing date, as set forth under “Basket – Initial basket component value” above, and the multiplier for such basket component on such date. |
Ending
level: |
The basket closing value on the calculation day |
Basket
closing value: |
The basket closing value on any day is the sum of the products of the closing value of each of the basket components and the multiplier for such basket component, in each case, on such day. |
|
Terms continued on the following page |
Agents: |
Morgan Stanley & Co. LLC (“MS & Co.”), a wholly-owned subsidiary of Morgan Stanley, and Wells Fargo Securities, LLC (“WFS”). See “Supplemental information regarding plan of distribution; conflicts of interest.” |
Estimated value on the pricing date: |
$938.10 per security. See “Investment Summary” beginning on page 3. |
Commissions
and offering price: |
Price to public |
Agent’s commissions(1) |
Proceeds to issuer(2) |
Per security |
$1,000 |
$34.90 |
$965.10 |
Total |
$3,441,000 |
$120,090.90 |
$3,320,909.10 |
| (1) | Wells Fargo Securities,
LLC, an agent for this offering, will receive a commission of $34.90 for each security
it sells. Dealers, including Wells Fargo Advisors, LLC (“WFA”), may receive
a selling concession of $15.00 per security, and WFA will receive a distribution expense
fee of $0.75 for each security sold by WFA. See “Supplemental information concerning
plan of distribution; conflicts of interest.” |
| (2) | See “Use of proceeds and hedging” on page 40. |
The securities
involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page
12. All payments on the securities are subject to the credit risk of Morgan Stanley.
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, index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not bank deposits and
are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or
guaranteed by, a bank.
You should read this document together with
the related product supplement for PLUS, index 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.
|
Wells
Fargo Securities |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Terms continued from previous page: |
Closing
value: |
For each basket component, on any trading day, the share closing price of such basket component on such day times the adjustment factor for such basket component on such day. |
Adjustment
factor: |
For each basket component, 1.0, subject to adjustment in the event of certain events affecting such basket component. |
Multiplier: |
The multiplier for each basket component was set on the pricing date based on such basket component’s respective initial basket component value so that each basket component is reflected in the predetermined starting level in accordance with its basket component weighting. The multipliers will remain constant for the term of the securities. See “Basket – Multiplier” above. |
Calculation
day: |
March 30, 2020, subject to postponement for non-trading days and certain market disruption events |
Threshold
level: |
85, which is 85% of the starting level |
Capped
value: |
$1,520 per security (152% of the face amount) |
Face
amount: |
$1,000 per security. References in this document to a “security” are to a security with a face amount of $1,000. |
Pricing
date: |
September 30, 2015 |
Original
issue date: |
October 5, 2015 (3 business days after the pricing date) |
CUSIP
/ ISIN: |
61761JK65 / US61761JK656 |
Listing: |
The securities will not be listed on any securities exchange. |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Investment Summary
Leveraged Upside Participation to a Cap
and Fixed Percentage Buffered Downside
Principal
at Risk Securities
The Securities Linked to an ETF Basket due April 6, 2020—Leveraged
Upside Participation to a Cap and Fixed Percentage Buffered Downside (the “securities”) can be used:
| § | As an alternative to direct exposure to the basket that enhances returns for a certain range
of positive performance of the basket |
| § | To enhance returns and potentially outperform the basket in a moderately bullish scenario |
| § | To achieve similar levels of upside exposure to the basket as a direct investment, subject to
the capped value, while using fewer dollars by taking advantage of the participation rate |
| § | To obtain a buffer against a specified level of negative performance in the basket |
The securities are not designed for, and may not be a suitable
investment for, investors who:
| § | Seek a liquid investment or are unable or unwilling to hold the securities to maturity |
| § | Are unwilling to accept the risk that the ending level of the basket may decrease by more than
15% from the starting level, resulting in a loss on the initial investment |
| § | Seek uncapped exposure to the upside performance of the basket |
| § | Seek full return of the face amount of the securities at maturity |
| § | Seek current income from their investments |
| § | Are unwilling to accept the risk of exposure to equity and commodity markets, including foreign
developed equity markets, foreign emerging equity markets, real estate investment trusts (“REITs”) and the large- and
small-capitalization segments of the U.S. equity markets |
| § | Seek exposure to the basket but are unwilling to accept the risk/return trade-offs inherent in
the payment at stated maturity for the securities |
| § | Are unwilling to accept the credit risk of Morgan Stanley |
| § | Prefer the lower risk of fixed income investments with comparable maturities issued by companies
with comparable credit ratings |
Maturity: |
Approximately 4.5 years |
Participation
rate: |
150% |
Capped
value: |
$1,520 per security (152% of the face amount) |
Threshold
level: |
85% of the starting level. The securities provide a 15% buffer, with 1-to-1 downside exposure to the decrease in the level of the basket in excess of 15%. |
Downside
exposure: |
Investors may lose up to 85% of the face amount of the securities. |
Interest: |
None |
The face amount of each security is $1,000. This price includes
costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently, the
estimated value of the securities on the pricing date is less than $1,000 per security. We estimate that the value of each security
on the pricing date is $938.10.
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 basket components. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
basket components, instruments based on the basket components, 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 capped value, the participation rate and the threshold level, 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.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
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 basket components, may vary from, and be
lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market
credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and
other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully
deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell
the securities in the secondary market, absent changes in market conditions, including those related to the basket components,
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.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Key Investment Rationale
The securities offer leveraged upside exposure to the basket,
subject to the capped value, while providing limited protection against negative performance of the basket. At maturity, if the
basket has appreciated in value, investors will receive the face amount plus 150% participation in the upside performance of the
basket, subject to the capped value of $1,520 per security. If the basket has depreciated in value, but not by more than 15%, the
securities will redeem for the face amount. However, if the basket has depreciated in value by more than 15%, investors will receive
less than the face amount and have 1-to-1 downside exposure to the decrease in the level of the basket in excess of 15%. Investors
may lose up to 85% of the face amount. All payments on the securities are subject to the credit risk of Morgan Stanley.
Leveraged
Performance |
The securities offer investors an opportunity to capture enhanced returns for a certain range of positive performance relative to a direct investment in the basket. |
Upside
Scenario |
The level of the basket increases, and, at maturity, the securities redeem for the face amount plus 150% participation in the upside performance of the basket, subject to the capped value of $1,520 per security. |
Par
Scenario |
The level of the basket decreases by no more than 15%, and, at maturity, the securities redeem for the face amount. |
Downside
Scenario |
The level of the basket decreases by more than 15%, and, at maturity, the securities redeem for less than the face amount and have 1-to-1 downside exposure to the decrease in the level of the basket in excess of 15%. For example: if the basket depreciates in value by 25%, the securities will redeem for $900, or 90% of the face amount. |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
How the Securities Work
Payoff Diagram
The payoff diagram below illustrates the redemption amount on
the securities based on the following terms, assuming no change to the adjustment factor:
Face amount: |
$1,000 per security |
Participation rate: |
150% |
Threshold level: |
85% of the starting level |
Capped value: |
$1,520 (152% of the face amount) |
Securities Payoff Diagram |
|
How it works
| § | Upside Scenario. If the ending level is greater than the starting level, investors
will receive the face amount of $1,000 per security plus 150% of the appreciation of the basket over the term of the securities,
subject to the capped value. Under the terms of the securities, an investor will receive the capped value of $1,520 per security
(152% of the face amount) at an ending level of approximately 134.67% of the starting level. |
| § | Par Scenario. If the ending level is less than or equal to the starting level but
greater than or equal to the threshold level, investors will receive the face amount of $1,000 per security. |
| § | Downside Scenario. If the ending level is less than the threshold level, investors
will receive an amount that is less than the face amount and have 1-to-1 downside exposure to the decrease in the level of the
basket in excess of 15%. |
| § | For example, if the basket depreciates 40%, investors would lose 25% of the face amount and receive only $750 per security
at maturity, or 75% of the face amount. |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Scenario Analysis and Examples of Redemption
Amount at Maturity
The following scenario analysis
and examples are provided for illustrative purposes only and are hypothetical. They do not purport to be representative of every
possible scenario concerning increases or decreases in the value of the basket relative to the starting level. We cannot predict
the ending level on the calculation day. You should not take the scenario analysis and these examples as an indication or assurance
of the expected performance of the basket. The numbers appearing in the examples below may have been rounded for ease of analysis.
Notwithstanding anything to the contrary in the accompanying product supplement for PLUS, the amount you will receive per
$1,000 face amount of securities at maturity will be the redemption amount, defined and calculated as provided in this document.
The following scenario analysis and examples illustrate the payment at maturity on a hypothetical offering of the securities, based
on the following terms*:
Investment term: |
4.5 years |
Starting level: |
100 |
Threshold level: |
85 (85% of the starting level) |
Participation rate: |
150% |
Capped value: |
$1,520 per security (152% of the face amount) |
Example 1—The value of the basket
increases from a starting level of 100 to an ending level of 110.
Because the hypothetical
ending level is greater than the starting level, the redemption amount would equal:
$1,000 + [$1,000 ×
[(110 – 100) / 100] × 150%] = $1,150
In this example, the redemption
amount is greater than the face amount but less than the capped value. Therefore, on the stated maturity date, you would receive
the redemption amount equal to $1,150 per $1,000 face amount of securities, resulting in a total return on the securities
of 15%.
Example 2—The value of the basket
increases from a starting level of 100 to an ending level of 160.
The redemption amount would
be equal to the capped value since the capped value is less than:
$1,000 + [$1,000 ×
[(160 – 100) / 100] × 150%] = $1,900
Therefore, on the stated maturity date, you would
receive the capped value of $1,520 per $1,000 face amount of securities, resulting in a total return on the securities of 52%.
The appreciation potential of the securities
is limited by the capped value of $1,520 per security, or 152% of the face amount. Although the participation rate provides 150%
exposure to any increase in the ending level over the starting level, because the redemption amount will be limited to 152% of
the face amount for the securities, any increase in the ending level over the starting level by more than approximately 34.67%
of the starting level will not further increase the return on the securities.
Example 3—The value of the basket
decreases from a starting level of 100 to an ending level of 90.
Because the hypothetical
ending level is less than or equal to the starting level but greater than or equal to the threshold level, the redemption amount
would equal:
$1,000
Because the hypothetical ending
level is less than or equal to the starting level but greater than or equal to the threshold level, you would receive the redemption
amount equal to $1,000 per $1,000 face amount of securities, resulting in a total return on the securities of 0%.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Example 4—The value of the basket
decreases from a starting level of 100 to an ending level of 60.
Because the hypothetical
ending level is less than the starting level by more than 15%, you would lose a portion of the face amount of your securities and
receive the redemption amount equal to:
$1,000 - [$1,000 ×
(85 – 60) / 100] = $750
Because the ending level is below the threshold
level on the calculation day, the securities will be fully exposed to any decline in the value of the basket in excess of 15%.
Therefore, the redemption amount is equal to $750 per $1,000 face amount of securities, resulting in a total loss on the securities
of 25%.
If the ending level is below the threshold
level on the calculation day, the securities will be fully exposed to any decline in the basket in excess of 15%. You may lose
up to 85% of the face amount of your securities at maturity.
Scenario Analysis – Hypothetical Redemption
Amount for each $1,000 Face Amount of Securities.
Performance
of the Basket
|
Performance
of the Securities
|
Ending
Level
|
Percent
Change in
Basket Closing Value
|
Participation
Rate
|
Redemption
Amount
|
Return
on
Securities(1)
|
|
200.0000 |
100.0000% |
150% |
$1,520 |
52% |
|
190.0000 |
90.0000% |
150% |
$1,520 |
52% |
|
180.0000 |
80.0000% |
150% |
$1,520 |
52% |
|
170.0000 |
70.0000% |
150% |
$1,520 |
52% |
|
160.0000 |
60.0000% |
150% |
$1,520 |
52% |
|
150.0000 |
50.0000% |
150% |
$1,520 |
52% |
|
140.0000 |
40.0000% |
150% |
$1,520 |
52% |
|
134.6667 |
34.6667% |
150% |
$1,520 |
52% |
|
130.0000 |
30.0000% |
150% |
$1,450.00 |
45.00% |
|
120.0000 |
20.0000% |
150% |
$1,300.00 |
30.00% |
|
110.0000 |
10.0000% |
150% |
$1,150.00 |
15.00% |
|
105.0000 |
5.0000% |
150% |
$1,075.00 |
7.50% |
|
100.0000(2) |
0.0000% |
N/A |
$1,000.00 |
0.00% |
|
90.0000 |
-10.0000% |
N/A |
$1,000.00 |
0.00% |
|
85.0000 |
-15.0000% |
N/A |
$1,000.00 |
0.00% |
|
84.0000 |
-16.0000% |
N/A |
$990.00 |
-1.00% |
|
80.0000 |
-20.0000% |
N/A |
$950.00 |
-5.00% |
|
70.0000 |
-30.0000% |
N/A |
$850.00 |
-15.00% |
|
60.0000 |
-40.0000% |
N/A |
$750.00 |
-25.00% |
|
50.0000 |
-50.0000% |
N/A |
$650.00 |
-35.00% |
|
40.0000 |
-60.0000% |
N/A |
$550.00 |
-45.00% |
|
30.0000 |
-70.0000% |
N/A |
$450.00 |
-55.00% |
|
20.0000 |
-80.0000% |
N/A |
$350.00 |
-65.00% |
|
10.0000 |
-90.0000% |
N/A |
$250.00 |
-75.00% |
|
0.0000 |
-100.0000% |
N/A |
$150.00 |
-85.00% |
|
(1)
The “Return on Securities” is the number, expressed as a percentage, which results from comparing the redemption amount
per $1,000 face amount of securities to the purchase price of $1,000 per security.
2)
The starting level
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
How to Calculate the Ending Level
Below are three full examples of how to calculate
the ending level. The following examples and the tables are based on hypothetical data and are provided for illustrative purposes
only. The examples do not show every situation that can occur.
Ending Level = Sum of the products of (i) the closing value of
each basket component on the calculation day (referred to in these examples as the “final basket component value”)
and (ii) the multiplier for such basket component on the calculation day
SPY Shares = |
Final Basket Component Value × Multiplier, plus |
IWM Shares = |
Final Basket Component Value × Multiplier, plus |
EFA Shares = |
Final Basket Component Value × Multiplier, plus |
EEM Shares = |
Final Basket Component Value × Multiplier, plus |
DBC Shares = |
Final Basket Component Value × Multiplier, plus |
VNQ Shares = |
Final Basket Component Value × Multiplier |
Example 1: The basket performance
is positive.
Basket
Component |
Basket
Component
Weighting |
Hypothetical
Multiplier |
Hypothetical
Initial Basket Component
Value |
Hypothetical
Final Basket Component
Value |
Appreciation
/ Depreciation |
SPY Shares |
50% |
0.250000000 |
$200.00 |
$220.00 |
+10% |
IWM Shares |
15% |
0.130434783 |
$115.00 |
$132.25 |
+15% |
EFA Shares |
15% |
0.250000000 |
$60.00 |
$63.00 |
+5% |
EEM Shares |
10% |
0.250000000 |
$40.00 |
$42.80 |
+7% |
DBC Shares |
5% |
0.333333333 |
$15.00 |
$16.50 |
+10% |
VNQ Shares |
5% |
0.062500000 |
$80.00 |
$84.00 |
+5% |
Using the hypothetical final basket component values and the
hypothetical multipliers above, the ending level is calculated as follows:
SPY Shares = |
$220.00 × 0.250000000, plus |
IWM Shares = |
$132.25 × 0.130434783, plus |
EFA Shares = |
$63.00 × 0.250000000, plus |
EEM Shares = |
$42.80 × 0.250000000, plus |
DBC Shares = |
$16.50 × 0.333333333, plus |
EEM Shares = |
$84.00 × 0.062500000 |
Ending Level |
= 109.45 |
Starting Level |
= 100.00 |
In the above example, all of the basket components
appreciated. Therefore, the basket appreciated in value from the starting level of 100.00 to the ending level of 109.45.
Example 2: The basket performance
is negative.
Basket
Component |
Basket
Component
Weighting |
Hypothetical
Multiplier |
Hypothetical
Initial Basket Component Value |
Hypothetical
Final Basket Component
Value |
Appreciation
/ Depreciation |
SPY Shares |
50% |
0.250000000 |
$200.00 |
$120.00 |
-40% |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
IWM Shares |
15% |
0.130434783 |
$115.00 |
$126.50 |
+10% |
EFA Shares |
15% |
0.250000000 |
$60.00 |
$63.00 |
+5% |
EEM Shares |
10% |
0.250000000 |
$40.00 |
$44.00 |
+10% |
DBC Shares |
5% |
0.333333333 |
$15.00 |
$16.50 |
+10% |
VNQ Shares |
5% |
0.062500000 |
$80.00 |
$84.00 |
+5% |
Using the hypothetical final basket component values and the
hypothetical multipliers above, the ending level is calculated as follows:
SPY Shares = |
$120.00 × 0.250000000, plus |
IWM Shares = |
$126.50 × 0.130434783, plus |
EFA Shares = |
$63.00 × 0.250000000, plus |
EEM Shares = |
$44.00 × 0.250000000, plus |
DBC Shares = |
$16.50 × 0.333333333, plus |
EEM Shares = |
$84.00 × 0.062500000 |
Ending Level |
= 84.00 |
Starting Level |
= 100.00 |
In the above example, the basket depreciated
in value from the starting level of 100.00 to the ending level of 84.00. The positive performance of the IWM Shares, the EFA Shares,
the EEM Shares, the DBC Shares and the VNQ Shares were more than offset by the negative performance of the more heavily weighted
SPY Shares, resulting in a negative performance of the basket.
Example 3: The basket performance
is negative.
Basket
Component |
Basket
Component
Weighting |
Hypothetical
Multiplier |
Hypothetical
Initial Basket Component
Value |
Hypothetical
Final
Basket Component
Value |
Appreciation
/ Depreciation |
SPY Shares |
50% |
0.250000000 |
$200.00 |
$170.00 |
-15% |
IWM Shares |
15% |
0.130434783 |
$115.00 |
$97.75 |
-15% |
EFA Shares |
15% |
0.250000000 |
$60.00 |
$45.00 |
-25% |
EEM Shares |
10% |
0.250000000 |
$40.00 |
$20.00 |
-50% |
DBC Shares |
5% |
0.333333333 |
$15.00 |
$12.00 |
-20% |
VNQ Shares |
5% |
0.062500000 |
$80.00 |
$72.00 |
-10% |
Using the hypothetical final basket component values and the
hypothetical multipliers above, the ending level is calculated as follows:
SPY Shares = |
$170.00 × 0.250000000, plus |
IWM Shares = |
$97.75 × 0.130434783, plus |
EFA Shares = |
$45.00 × 0.250000000, plus |
EEM Shares = |
$20.00 × 0.250000000, plus |
DBC Shares = |
$12.00 × 0.333333333, plus |
EEM Shares = |
$72.00 × 0.062500000 |
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Ending Level |
= 80.00 |
Starting Level |
= 100.00 |
In the above example, all of the basket components
depreciated. Therefore, the basket depreciated in value from the starting level of 100.00 to the ending level of 80.00.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
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 for PLUS, index supplement and prospectus. We also urge you to
consult your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
| § | The securities do not pay interest, and you will receive less, and up to 85% less, than the face amount of your securities
at maturity if the ending level is less than the threshold level. The terms of the securities differ from those of ordinary
debt securities in that the securities do not pay interest or repay a fixed amount of the face amount of the securities. If the
ending level is less than the threshold level, which is 85% of the starting level, you will receive less, and up to 85% less, than
the face amount of your securities at maturity. |
| § | The appreciation potential of the securities is limited by the capped value. The appreciation potential of the securities
is limited by the capped value of $1,520 per security, or 152% of the face amount. Although the participation rate provides 150%
exposure to any increase in the ending level over the starting level, because the redemption amount will be limited to 152% of
the face amount for the securities, any increase in the ending level over the starting level by more than approximately 34.67%
of the starting level will not further increase the return on the securities. |
| § | 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. or any other dealer may
be willing to purchase or sell the securities in the secondary market, including: |
| § | the share closing price of each of the basket components at any time, |
| § | the volatility (frequency and magnitude of changes in share closing price) of each of the basket components, |
| § | interest and yield rates in the market, |
| § | geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the basket components
or stock, commodity or REIT markets generally and which may affect the closing values of the basket components on the calculation
day, |
| § | the exchange rates relative to the U.S. dollar with respect to each of the currencies in which the stocks underlying the EEM
Shares and the EFA Shares trade, |
| § | dividend yields of the basket components, |
| § | the time remaining until the securities mature, |
| § | the occurrence of certain events affecting the SPY Shares, the IWM Shares, the EEM Shares, the EFA Shares, the DBC Shares or
the VNQ Shares that may or may not require an adjustment to the respective adjustment factors, and |
| § | any actual or anticipated changes in our credit ratings or credit spreads. |
Some or all of these factors will
influence the price that you will receive if you sell your securities prior to maturity. The prices of the basket components may
be, and have recently been, volatile, and we can give you no assurance that the volatility will lessen. See “SPDR®
S&P 500® ETF Trust Overview,” “iShares® Russell 2000® ETF Overview,”
“iShares® MSCI EAFE ETF Overview” and “iShares® MSCI Emerging Markets ETF Overview,”
“PowerShares DB Commodity Index Tracking Fund Overview” and “Vanguard REIT ETF Overview” below. You may
receive less, and possibly significantly less, than the face amount per security if you try to sell your securities prior to maturity.
| § | The securities are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings
or credit spreads may adversely affect the market value of the securities. You are dependent on Morgan Stanley’s ability
to pay all amounts due on the securities at maturity, and therefore you are subject to the credit risk of Morgan Stanley. If Morgan
Stanley defaults on its 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 Morgan Stanley’s creditworthiness. Any actual or anticipated decline in Morgan Stanley’s credit ratings or
increase in the credit spreads charged by the market for taking Morgan Stanley credit risk is likely to adversely affect the market
value of the securities. |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
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| § | The amount payable on the securities is not linked to the value of the basket at any time other than the calculation day.
The ending level will be based on the share closing prices of the basket components on the calculation day and the applicable
adjustment factors, subject to postponement for non-trading days and certain market disruption events. If some or all of the basket
components appreciate prior to the calculation day but then depreciate by the calculation day, the redemption amount will be less,
and may be significantly less, than it would have been had the redemption amount been linked to the prices of the basket components
prior to such decrease. Although the actual prices of the basket components on the stated maturity date or at other times during
the term of the securities may be higher than their share closing prices on the calculation day, the redemption amount will be
based solely on the share closing prices of the basket components on the calculation day and the applicable adjustment factors. |
| § | Changes in the price of one or more of the basket components may offset changes in the prices of the others. Movements
in the prices of the basket components may not correlate with each other. At a time when the price of one basket component increases,
the price of the other basket components may not increase as much, or may even decline. Therefore, in calculating the ending level,
increases in the price of one basket component may be moderated, or wholly offset, by lesser increases or declines in the prices
of the other basket components. Furthermore, the basket is not equally weighted among the basket components. Decreases in the price
of a more heavily weighted basket component could moderate or wholly offset increases in the prices of the less heavily weighted
basket components. |
| § | Investing in the securities is not equivalent to investing in the basket components . Investing in the securities is
not equivalent to investing in the basket components or the S&P 500® Index, the Russell 2000®
Index, the MSCI EAFE Index, the MSCI Emerging Markets Index, the DBIQ Optimum Yield Diversified Commodity Index – Excess
ReturnTM or the MSCI U.S. REIT Index (each, a “share underlying index”). As an investor in the securities,
you will not have voting rights or the right to receive dividends or other distributions or any other rights with respect to either
the basket components, their components or the share underlying indices. Furthermore, the securities will provide less opportunity
for appreciation than an investment in a similar security that is linked directly to the appreciation of the basket and is not
subject to a capped value at maturity. In addition, you do not have the right to exchange your securities for any of the basket
components at any time, and your investment is subject to the credit risk of Morgan Stanley. |
| § | The prices of the EFA Shares and the EEM Shares are subject to currency exchange rate risk. Because
the prices of the EFA Shares and the EEM Shares, two of the basket components, are related to the U.S. dollar value of stocks underlying
the MSCI Emerging Markets Index and the MSCI EAFE Index, respectively, holders of the
securities will be exposed to currency exchange rate risk with respect to each of the currencies in which such component
securities of the EEM Shares and the EFA Shares trade. Exchange rate movements for a particular
currency are volatile and are the result of numerous factors including the supply of, and the demand for, those currencies, as
well as relevant government policy, intervention or actions, but are also influenced significantly from time to time by political
or economic developments, and by macroeconomic factors and speculative actions related to the relevant region. An investor’s
net exposure will depend on the extent to which the currencies of the component securities strengthen or weaken against the U.S.
dollar and the relative weight of each currency. If, taking into account such weighting, the dollar strengthens against
the currencies of the component securities represented in the EEM Shares and the EFA Shares, the prices of the EEM Shares and the
EFA Shares will be adversely affected and the redemption amount payable at maturity of the securities
may be reduced. |
Of
particular importance to potential currency exchange risk are:
| · | existing and expected rates of inflation; |
| · | existing and expected interest rate levels; |
| · | the balance of payments between countries; and |
| · | the extent of governmental surpluses or deficits in the countries represented in the MSCI
EAFE Index or the MSCI Emerging Markets Index and the United States. |
All
of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of various countries
represented in the MSCI EAFE Index or the MSCI Emerging Markets Index and the United States
and other countries important to international trade and finance.
| § | There are risks associated with investments in securities, such as the securities, linked to the value of foreign (and especially
emerging markets) equity securities. The EFA Shares track the performance of the
MSCI EAFE Index, which is linked to the value of foreign equity securities, and the EEM Shares track the performance of the MSCI |
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Emerging Markets Index, which
is linked solely to the value of foreign emerging markets equity securities. Investments in securities linked to the value of foreign
equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those
markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries. Also, there is generally
less publicly available information about foreign companies than about U.S. companies that are subject to the reporting requirements
of the Securities and Exchange Commission (the “Commission”), and foreign companies are subject to accounting, auditing
and financial reporting standards and requirements different from those applicable to U.S. reporting companies. The prices of securities
issued in foreign markets may be affected by political, economic, financial and social factors in those countries, or global regions,
including changes in government, economic and fiscal policies and currency exchange laws. In addition, the stocks included in the
MSCI Emerging Markets Index and that are generally tracked by the EEM Shares have been issued by companies in various emerging
markets countries, which pose further risks in addition to the risks associated with investing in foreign equity markets generally.
Countries with emerging markets may have relatively unstable governments, may present the risks of nationalization of businesses,
restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection of property rights
than more developed countries. The economies of countries with emerging markets may be based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries
may differ unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payment positions.
| § | The securities are linked to the IWM Shares and are therefore subject to risks associated with small-capitalization companies.
The IWM Shares seek investment results that correspond generally to the price and yield performance of the Russell 2000®
Index. The Russell 2000® Index consists of stocks issued by companies with relatively small market capitalization.
These companies often have greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies
and therefore the Russell 2000® Index may be more volatile than indices that consist of stocks issued by large-capitalization
companies. Stock prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies
to adverse business and economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition,
small capitalization companies are typically less well-established and less stable financially than large-capitalization companies
and may depend on a small number of key personnel, making them more vulnerable to loss of personnel. Such companies tend to have
smaller revenues, less diverse product lines, smaller shares of their product or service markets, fewer financial resources and
less competitive strengths than large-capitalization companies and are more susceptible to adverse developments related to their
products. |
| § | Investments linked to commodities are subject to sharp fluctuations in commodity prices. The DBC Shares seek to track
a share underlying index which includes fourteen physical commodities: light sweet crude oil (WTI), heating oil, RBOB gasoline,
natural gas, brent crude, gold, silver, aluminum, zinc, copper grade A, corn, wheat, soybeans and sugar. Investments linked to
the prices of commodities are subject to sharp fluctuations in the prices of commodities and related contracts over short periods
of time as a result of a variety of factors, including: changes in supply and demand relationships; weather; climatic events; the
occurrence of natural disasters; wars; political and civil upheavals; acts of terrorism; trade, fiscal, monetary, and exchange
control programs; domestic and foreign political and economic events and policies; disease; pestilence; technological developments;
changes in interest rates; and trading activities in commodities and related contracts. These factors may affect the price of the
DBC Shares and the value of the basket, and, therefore, the value of the securities in varying and potentially inconsistent ways.
As a result of these or other factors, the price of the DBC Shares may be volatile. |
| § | Legal and regulatory changes could adversely affect the return on and value of your securities. Futures contracts and
options on futures contracts, including those related to the index tracked by the DBC Shares, are subject to extensive statutes,
regulations, and margin requirements. The Commodity Futures Trading Commission, commonly referred to as the “CFTC,”
and the exchanges on which such futures contracts trade are authorized to take extraordinary actions in the event of a market emergency,
including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment
of daily limits and the suspension of trading. Furthermore, certain exchanges have regulations that limit the amount of fluctuations
in futures contract prices that may occur during a single five-minute trading period. These limits could adversely affect the market
prices of relevant |
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futures and options contracts
and forward contracts. The regulation of commodity transactions in the U.S. is subject to ongoing modification by government and
judicial action. In addition, various non-U.S. governments have expressed concern regarding the disruptive effects of speculative
trading in the commodity markets and the need to regulate the derivative markets in general. The effect on the value of the securities
of any future regulatory change is impossible to predict, but could be substantial and adverse to the interests of holders of the
securities.
For example, the Dodd-Frank Act,
which was enacted on July 21, 2010, requires the CFTC to establish limits on the amount of positions that may be held by any person
in certain commodity futures contracts and swaps, futures and options that are economically equivalent to such contracts. While
the effects of these or other regulatory developments are difficult to predict, when adopted, such rules may have the effect of
making the markets for commodities, commodity futures contracts, options on futures contracts and other related derivatives more
volatile and over time potentially less liquid. Such restrictions may force market participants, including us and our affiliates,
or such market participants may decide, to sell their positions in such futures contracts and other instruments subject to the
limits. If this broad market selling were to occur, it would likely lead to declines, possibly significant declines, in commodity
prices, in the price of such commodity futures contracts or instruments and potentially, the value of the securities.
| § | The VNQ Shares are subject to risks associated with the real estate industry. The VNQ Shares are subject to certain
risks applicable to the real estate industry. The VNQ Shares invests in real estate investment trusts (“REITs”), which
exposes the VNQ Shares to the risks of owning real estate directly as well as to risks that relate specifically to the way in which
REITs are organized and operated. Real estate is highly sensitive to general and local economic conditions and developments, and
characterized by intense competition and periodic overbuilding. Specific risks especially relevant to investment in the real estate
industry include interest rate risk, leverage risk, property risk, management risk, liquidity risk, concentration risk, U.S. tax
risk and regulatory risk. Any of these risks could adversely impact the value of the VNQ Shares, and, accordingly, the value of
the securities. |
| § | The adjustments to the adjustment factors the calculation agent is required to make do not cover every corporate event that
can affect the SPY Shares, the IWM Shares, the EFA Shares, the EEM Shares, the DBC Shares or the VNQ Shares. MS & Co.,
as calculation agent, will adjust the respective adjustment factor for the SPY Shares, the IWM Shares, the EFA Shares, the EEM
Shares, the DBC Shares and the VNQ Shares for stock splits and stock dividends. However, the calculation agent will not make an
adjustment for every corporate event or any distribution that could affect the SPY Shares, the IWM Shares, the EFA Shares, the
EEM Shares, the DBC Shares or the VNQ Shares. 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. |
| § | Adjustments to any of the basket components or to the
share underlying indices could adversely affect the value of the securities. The
investment advisor for each of the basket components seeks investment results that correspond generally to the price and yield
performance, before fees and expenses, of the relevant share underlying index. Pursuant to their investment strategies or otherwise,
the applicable investment advisor can add, delete or substitute the stocks composing such basket components. Any of these actions
could adversely affect the price of the basket components, and, consequently, the value of the securities. In addition, the publisher
of each share underlying index is responsible for calculating and maintaining the relevant share underlying index. The applicable
index publisher may add, delete or substitute the components constituting the share underlying index or make other methodological
changes required by certain corporate events relating to the components, such as stock dividends, stock splits, spin-offs, rights
offerings and extraordinary dividends, that could change the value of the share underlying index. The index publishers may also
discontinue or suspend calculation or publication of any of the underlying indices at any time. If this discontinuance or suspension
occurs following the discontinuance or liquidation of the related basket component, the calculation agent will have the sole discretion
to substitute a successor index that is comparable to the discontinued share underlying index, and is permitted to consider indices
that are calculated and published by the calculation agent or any of its affiliates. Any of these actions could adversely affect
the closing values of any of the basket components, and, consequently, the value of the securities. |
| § | The basket components and the share underlying indices are different. The performance
of any of the basket components may not exactly replicate the performance of the corresponding share underlying index because each
of the basket components will reflect transaction costs and fees that are not included in the calculation of the corresponding
share underlying index tracked by such basket component. It is also possible that one or more of the basket components may not
fully replicate, or may in certain circumstances diverge significantly from, the performance of the corresponding share underlying
index due to the temporary unavailability of certain securities in the secondary |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
market,
the performance of any derivative instruments contained in such basket components, differences in trading hours between such basket
components and the corresponding share underlying index or due to other circumstances. Additionally, the investment adviser of
any of the basket components may have authorization to invest up to a certain percentage of its assets in shares of other exchange-traded
funds that seek to track the performance of equity securities of similar constituent countries or industries of the corresponding
share underlying index.
| § | 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 face amount reduce the economic terms of the securities, cause
the estimated value of the securities to be less than the face amount 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 face amount,
because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the
face amount 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 face amount and the lower rate we are willing to pay as issuer make the
economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the basket components, 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. |
| § | The securities will not be listed on any securities exchange and secondary trading may be limited. Accordingly, you
should be willing to hold your securities for the entire 4.5-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. and WFS may,
but are not obligated to, make a market in the securities and, if either of them once chooses to make a market, may cease doing
so at any time. When they do make a market, they will generally do so for transactions of routine secondary market size at prices
based on their respective estimates of the current value of the securities, taking into account their respective bid/offer spreads,
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 they 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. or WFS is willing to transact. If, at any time, MS & Co. and
WFS 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 calculation agent, which is a subsidiary of Morgan Stanley, will make determinations with respect to the securities.
As calculation agent, MS & Co. has determined the initial basket component value and multiplier for each basket component,
will determine the ending level, will make any adjustments to the adjustment factors and will |
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calculate the amount of cash
you receive at maturity. Moreover, certain determinations made by MS & Co. in its capacity as calculation agent, may require
it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption
events and the selection of a successor index or calculation of the ending level in the event of a market disruption event or discontinuance
of any share underlying index. These potentially subjective determinations may adversely affect the payout to you at maturity.
For further information regarding these types of determinations, see “Description of PLUS—Postponement of Valuation
Date(s),” “—Antidilution Adjustments for PLUS Linked to Exchange-Traded Funds,” “—Alternate
Exchange Calculation in case of an Event of Default,” “—Discontinuance of Any ETF Shares and/or Share Underlying
Index; Alteration of Method of Calculation” and “—Calculation Agent and Calculations” in the accompanying
product supplement for PLUS. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
| § | Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the securities. One
or more of our subsidiaries 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 basket components or the share underlying indices), including trading
in the basket components, in futures and/or options contracts on the basket components, the components of the basket components
or the share underlying indices and other financial instruments related to the basket components listed on major securities markets.
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 calculation day approaches. Some of our subsidiaries
also trade the basket components or the components of the basket components and other financial instruments related to the share
underlying indices 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 basket component values, and, therefore, could have
increased the values at or above which the basket components must close on the calculation day so that investors do not suffer
a loss on their initial investment in the securities. Additionally, such hedging or trading activities during the term of the securities,
including on the calculation day, could adversely affect the values of the basket components, and, therefore, adversely affect
the value of the securities or the payment you will receive at maturity. |
| § | The stated maturity date may be postponed if the calculation day is postponed. If the scheduled calculation day is not
a trading day for a basket component or if a market disruption event occurs with respect to a basket component on that day so that
the calculation day for such basket component is postponed and falls less than two business days prior to the stated maturity date,
the stated maturity date of the securities will be postponed to the second business day following the last calculation day as postponed. |
| § | Historical prices of the basket components should not be taken as an indication of the future performance of the basket
components during the term of the securities. No assurance can be given as to the prices of the basket components at any time,
including on the calculation day, because historical prices of the basket components do not provide an indication of future performance
of the basket components. |
| § | Potentially inconsistent research, opinions or recommendations by MS & Co., WFS or their respective affiliates.
MS & Co., WFS and their respective affiliates may publish research from time to time on financial markets and other matters
that may influence the value of the securities, or express opinions or provide recommendations that are inconsistent with purchasing
or holding the securities. Any research, opinions or recommendations expressed by MS & Co., WFS or their respective affiliates
may not be consistent with each other and may be modified from time to time without notice. Investors should make their own independent
investigation of the merits of investing in the securities and the basket components to which the securities are linked. |
| § | The U.S. federal income tax consequences of an investment in the securities are uncertain. Please read the discussion
under “Additional provisions ― Tax considerations” in this document and the discussion under “United States
Federal Taxation” in the accompanying product supplement for PLUS (together the “Tax Disclosure Sections”) concerning
the U.S. federal income tax consequences of an investment in the securities. As discussed in the Tax Disclosure Sections, there
is a substantial risk that the “constructive ownership” rule could apply, in which case all or a portion of any long-term
capital gain recognized by a U.S. Holder could be recharacterized as ordinary income and an interest charge could be imposed. If
the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character
of income on the securities might differ significantly from the tax treatment described in the Tax Disclosure Sections. For example,
under one possible treatment, the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders
would be required to accrue into income |
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original issue discount on the
securities every year at a “comparable yield” determined at the time of issuance and recognize all income and gain
in respect of the securities as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA
Legislation” in the accompanying product supplement for PLUS, the withholding rules commonly referred to as “FATCA”
would apply to the securities if they were recharacterized as debt instruments except that, under a recent IRS notice, withholding
under FATCA will not apply to payments of gross proceeds (other than any amount treated as interest) of any disposition of financial
instruments before January 1, 2019. The risk that financial instruments providing for buffers, triggers or similar downside protection
features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable
financial instruments that do not have such features. We do not plan to request a ruling from the IRS regarding the tax treatment
of the securities, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.
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 in particular on whether to require holders of these 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; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, as
discussed in this document. While the notice requests comments on appropriate transition rules and effective dates, 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. Both U.S. and Non-U.S. Holders should consult their tax
advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative
treatments, the potential application of the constructive ownership rule, the issues presented by this notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Basket Overview
The basket consists of the SPY Shares, the IWM Shares, the EFA
Shares, the EEM Shares, the DBC Shares and the VNQ Shares. The basket offers exposure to price movements in U.S. and international
equity and commodity markets. For more information on the individual basket components, see below.
Basket
Component Information as of September 30, 2015 |
|
Bloomberg
Ticker Symbol |
Current
Share
Closing Price |
52
Weeks Ago |
52 Week
High
|
52
Week Low |
The
SPY Shares |
SPY
UP |
$191.63 |
$197.02 |
$213.50
(on 5/21/2015)
|
$186.27
(on 10/16/2014)
|
The
IWM Shares |
IWM
UP |
$109.20 |
$109.35 |
$129.01
(on 6/23/2015)
|
$104.30
(on 10/13/2014)
|
The
EFA Shares |
EFA
UP |
$57.32 |
$64.12 |
$68.42
(on 5/15/2015)
|
$56.25
(on 9/29/2015)
|
The
EEM Shares |
EEM
UP |
$32.78 |
$41.56 |
$44.09
(on 4/28/2015)
|
$31.32
(on 8/24/2015)
|
The
DBC Shares |
DBC
UP |
$15.15 |
$23.22 |
$23.22
(on 9/30/2014)
|
$14.41
(on 8/26/2015)
|
The
VNQ Shares |
VNQ
UP |
$75.54 |
$71.85 |
$88.65
(on 1/27/2015)
|
$71.79
(on 10/2/2014)
|
Historical Daily Performance
of the Basket
January 1, 2010 to September
30, 2015
|
|
The graph above is calculated to show the performance of the
basket during the period from January 1, 2010 through September 30, 2015, assuming the basket components are weighted as set out
on the cover of this document and that the basket component weightings and multipliers were set on January 1, 2010 such that the
starting level was 100, and illustrates the effect of the offset and/or correlation among the basket components during such period.
The graph does not take into account the participation rate or the threshold level, nor does it attempt to show your expected return
on an investment in the securities. The historical values of the basket should not be taken as an indication of its future performance.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
The SPDR® S&P 500®
ETF Trust Overview
The SPDR® S&P 500® ETF Trust
(formerly SPDR Trust, Series 1), or SPY, formed by PDR Services LLC, is a unit investment trust registered under the Investment
Company Act of 1940 that holds a portfolio of securities consisting of substantially all of the common stocks, in substantially
the same weighting, as the S&P 500® Index. SPY seeks investment results that generally correspond to the price
and yield performance, before fees and expenses, of the S&P 500® Index. Information provided to or filed with
the Commission by SPY pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference
to Commission file numbers 033-46080 and 811-06125, respectively, through the Commission’s website at www.sec.gov. In addition,
information may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly
disseminated documents. Neither the issuer nor the agents make any representation that such publicly available documents or any
other publicly available information regarding the SPDR® S&P 500® ETF Trust is accurate or complete.
Information as of market close on September 30, 2015:
Bloomberg
Ticker Symbol: |
SPY UP |
Current
Share Closing Price: |
$191.63 |
52
Weeks Ago: |
$197.02 |
52
Week High (on 5/21/2015): |
$213.50 |
52
Week Low (on 10/16/2014): |
$186.27 |
The following graph sets forth the daily share closing prices
of the SPY Shares for each quarter in the period from January 1, 2010 through September 30, 2015. The related table sets forth
the published high and low share closing prices, as well as end-of-quarter share closing prices, of the SPY shares for each quarter
in the same period. The share closing price of the SPY Shares on September 30, 2015 was $191.63. We obtained the information in
the table and graph below from Bloomberg Financial Markets without independent verification. The SPY Shares have at times experienced
periods of high volatility. You should not take the historical prices of the SPY Shares as an indication of future performance,
and no assurance can be given as to the share closing price of the SPY Shares on the calculation day.
Shares of the SPDR®
S&P 500® ETF Trust
Daily Share Closing Prices
January 1, 2010 to September
30, 2015
|
|
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
SPDR®
S&P 500® ETF Trust (CUSIP 78462F103) |
High
($) |
Low
($) |
Period
End ($) |
2010 |
|
|
|
First Quarter |
117.40 |
105.87 |
116.99 |
Second Quarter |
121.79 |
103.22 |
103.22 |
Third Quarter |
114.79 |
102.20 |
114.12 |
Fourth Quarter |
125.92 |
113.75 |
125.78 |
2011 |
|
|
|
First Quarter |
134.57 |
126.21 |
132.51 |
Second Quarter |
136.54 |
126.81 |
131.97 |
Third Quarter |
135.46 |
112.26 |
113.17 |
Fourth Quarter |
128.68 |
109.93 |
125.50 |
2012 |
|
|
|
First Quarter |
141.61 |
127.49 |
140.72 |
Second Quarter |
141.79 |
128.10 |
136.27 |
Third Quarter |
147.24 |
133.51 |
143.93 |
Fourth Quarter |
146.27 |
135.70 |
142.52 |
2013 |
|
|
|
First Quarter |
156.73 |
145.53 |
156.55 |
Second Quarter |
167.11 |
154.14 |
160.01 |
Third Quarter |
173.14 |
161.16 |
168.10 |
Fourth Quarter |
184.67 |
165.48 |
184.67 |
2014 |
|
|
|
First Quarter |
188.26 |
174.15 |
187.04 |
Second Quarter |
196.48 |
181.48 |
195.72 |
Third Quarter |
201.82 |
190.99 |
197.02 |
Fourth Quarter |
208.72 |
186.27 |
205.50 |
2015 |
|
|
|
First Quarter |
211.99 |
198.97 |
206.43 |
Second Quarter |
213.50 |
205.42 |
205.85 |
Third Quarter |
212.59 |
187.27 |
191.63 |
This document relates only to the securities referenced hereby
and does not relate to the SPY Shares. We have derived all disclosures contained in this document regarding the SPDR®
S&P 500® ETF Trust from the publicly available documents described above. In connection with the
offering of the securities, neither we nor either agent has participated in the preparation of such documents or made any due diligence
inquiry with respect to the SPDR® S&P 500® ETF Trust. Neither we nor either agent
makes any representation that such publicly available documents or any other publicly available information regarding the SPDR®
S&P 500® ETF Trust is accurate or complete. Furthermore, we cannot give any assurance that all events
occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents
described above) that would affect the trading price of the SPY Shares (and therefore the price of the SPY Shares at the time we
priced the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or
failure to disclose material future events concerning the SPDR® S&P 500® ETF Trust could affect
the value received at maturity with respect to the securities and therefore the value of the securities.
Neither we, the agents nor any of our or their affiliates
makes any representation to you as to the performance of the SPY Shares.
We and/or our affiliates may presently or from time to time engage
in business with the SPDR® S&P 500® ETF Trust. In the course of such business, we and/or our
affiliates may acquire non-public information with respect to the SPDR® S&P 500® ETF Trust, and
neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates
may publish research reports with respect to the SPY Shares. The statements in the preceding two sentences are not intended to
affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the securities, you should
undertake an independent investigation of the SPDR® S&P 500® ETF Trust as in your judgment is
appropriate to make an informed decision with respect to an investment in the SPY Shares.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
“Standard & Poor’s®”,
“S&P®”, “S&P 500®” and “SPDR®” are trademarks
of Standard & Poor’s Financial Services LLC (“S&P”), an affiliate of The McGraw-Hill Companies, Inc.
(“MGH”). The securities are not sponsored, endorsed, sold, or promoted by S&P, MGH or SPY. S&P, MGH and SPY
make no representations or warranties to the owners of the securities or any member of the public regarding the advisability of
investing in the securities. S&P, MGH and SPY have no obligation or liability in connection with the operation, marketing,
trading or sale of the securities.
The S&P
500® Index
The
S&P 500® Index, which is calculated, maintained and published by S&P, consists of stocks of 500 component
companies selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500®
Index is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of
a particular time as compared to the aggregate average market capitalization of 500 similar companies during the base period of
the years 1941 through 1943. S&P has announced that, effective with the September 2015 rebalance, consolidated share class
lines are no longer included in the S&P 500® Index. Each share class line is subject to public float and liquidity criteria
individually, but the company’s total market capitalization is used to evaluate each share class line for purposes of determining
index membership eligibility. This may result in one listed share class line of a company being included in the S&P 500®
Index while a second listed share class line of the same company is excluded. For additional information about the S&P 500®
Index, see the information set forth under “S&P 500® Index” in the accompanying index supplement.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
iShares® Russell 2000®
ETF Overview
The iShares® Russell 2000® ETF
is an exchange-traded fund that seeks investment results that correspond generally to the price and yield performance, before fees
and expenses, of the Russell 2000® Index. The iShares® Russell 2000® ETF
is managed by iShares Trust (“iShares”), a registered investment company that consists of numerous separate investment
portfolios. Information provided to or filed with the Commission by iShares pursuant to the Securities Act of 1933 and the
Investment Company Act of 1940 can be located by reference to Commission file numbers 333-92935 and 811-09729, respectively, through
the Commission’s website at www.sec.gov. In addition, information may be obtained from other sources including, but not limited
to, press releases, newspaper articles and other publicly disseminated documents. Neither the issuer nor the agents make any representation
that such publicly available documents or any other publicly available information regarding the iShares® Russell
2000® ETF is accurate or complete.
Information as of market close on September 30, 2015:
Bloomberg
Ticker Symbol: |
IWM UP |
Current
Share Closing Price: |
$109.20 |
52 Weeks Ago: |
$109.35 |
52 Week High (on 6/23/2015): |
$129.01 |
52 Week Low (on 10/13/2014): |
$104.30 |
The following graph sets forth the daily share closing prices
of the IWM Shares for each quarter in the period from January 1, 2010 through September 30, 2015. The related table sets forth
the published high and low share closing prices, as well as end-of-quarter share closing prices, of the IWM shares for each quarter
in the same period. The share closing price of the IWM Shares on September 30, 2015 was $109.20. We obtained the information in
the table and graph below from Bloomberg Financial Markets without independent verification. The IWM Shares have at times experienced
periods of high volatility. You should not take the historical prices of the IWM Shares as an indication of future performance,
and no assurance can be given as to the share closing price of the IWM Shares on the calculation day.
Shares of the iShares® Russell 2000®
Daily Share Closing Prices
January 1, 2010 to September 30, 2015 |
|
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
iShares®
Russell 2000® ETF (CUSIP 464287655) |
High
($) |
Low
($) |
Period
End ($) |
2010 |
|
|
|
First Quarter |
69.25 |
58.68 |
67.81 |
Second Quarter |
74.14 |
61.08 |
61.08 |
Third Quarter |
67.67 |
59.04 |
67.47 |
Fourth Quarter |
79.22 |
66.94 |
78.23 |
2011 |
|
|
|
First Quarter |
84.17 |
77.18 |
84.17 |
Second Quarter |
86.37 |
77.77 |
82.80 |
Third Quarter |
85.65 |
64.25 |
64.25 |
Fourth Quarter |
76.45 |
60.97 |
73.69 |
2012 |
|
|
|
First Quarter |
84.41 |
74.56 |
82.85 |
Second Quarter |
83.79 |
73.64 |
79.65 |
Third Quarter |
86.40 |
76.68 |
83.46 |
Fourth Quarter |
84.69 |
76.88 |
84.29 |
2013 |
|
|
|
First Quarter |
94.80 |
86.65 |
94.26 |
Second Quarter |
99.51 |
89.58 |
97.16 |
Third Quarter |
107.10 |
98.08 |
106.62 |
Fourth Quarter |
115.31 |
103.67 |
115.31 |
2014 |
|
|
|
First Quarter |
119.83 |
108.64 |
116.34 |
Second Quarter |
118.81 |
108.88 |
118.81 |
Third Quarter |
120.02 |
109.35 |
109.35 |
Fourth Quarter |
121.08 |
104.30 |
119.67 |
2015 |
|
|
|
First Quarter |
126.03 |
114.69 |
124.35 |
Second Quarter |
129.01 |
120.85 |
124.86 |
Third Quarter |
126.31 |
107.53 |
109.20 |
This document relates only to the securities referenced hereby
and does not relate to the IWM Shares. We have derived all disclosures contained in this document regarding iShares
from the publicly available documents described above. In connection with the offering of the securities, neither we
nor either agent has participated in the preparation of such documents or made any due diligence inquiry with respect to iShares. Neither
we nor either agent makes any representation that such publicly available documents or any other publicly available information
regarding iShares is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior
to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described
above) that would affect the trading price of the IWM Shares (and therefore the price of the IWM Shares at the time we priced the
securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to
disclose material future events concerning iShares could affect the value received at maturity with respect to the securities and
therefore the value of the securities.
Neither we, the agents nor any of our or their affiliates
makes any representation to you as to the performance of the IWM Shares.
We and/or our affiliates may presently or from time to time engage
in business with iShares. In the course of such business, we and/or our affiliates may acquire non-public information
with respect to iShares, and neither we nor any of our affiliates undertakes to disclose any such information to you. In
addition, one or more of our affiliates may publish research reports with respect to the IWM Shares. The statements
in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws. As
a prospective purchaser of the securities, you should undertake an independent investigation of iShares as in your judgment is
appropriate to make an informed decision with respect to an investment in the IWM Shares.
iShares® is a registered trademark of BlackRock
Institutional Trust Company, N.A. (“BTC”). The securities are not sponsored, endorsed, sold, or promoted by BTC. BTC
makes no representations or warranties to the owners of the securities or any member of the public regarding the advisability of
investing in the securities. BTC has no obligation or liability in connection with the operation, marketing, trading
or sale of the securities.
The Russell 2000®
Index. The Russell 2000® Index is an index calculated, published and disseminated by Russell
Investments, and measures the composite price performance of stocks of 2,000 companies incorporated in the U.S. and its
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
territories. All 2,000 stocks are traded on a major
U.S. exchange and are the 2,000 smallest securities that form the Russell 3000® Index. The Russell 3000
Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of
the U.S. equity market. The Russell 2000® Index represents a small portion of the total market capitalization
of the Russell 3000® Index. The Russell 2000® Index is designed to track the performance
of the small capitalization segment of the U.S. equity market. For additional information about the Russell 2000®
Index, see the information set forth under “Russell 2000® Index” in the accompanying index supplement.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
iShares® MSCI EAFE ETF Overview
The iShares® MSCI EAFE ETF is an exchange-traded
fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
MSCI EAFE IndexSM. The iShares® MSCI EAFE ETF is managed by iShares, a registered investment company
that consists of numerous separate investment portfolios, including the iShares® MSCI EAFE ETF. Information provided
to or filed with the Commission by iShares pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be
located by reference to Commission file numbers 333-92935 and 811-09729, respectively, through the Commission’s website at.www.sec.gov.
In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and
other publicly disseminated documents. Neither the issuer nor the agents make any representation that such publicly available documents
or any other publicly available information regarding the iShares® MSCI EAFE ETF is accurate or complete.
Information as of market close on September 30, 2015:
Bloomberg
Ticker Symbol: |
EFA UP |
Current
Share Closing Price: |
$57.32 |
52 Weeks Ago: |
$64.12 |
52 Week High (on 5/15/2015): |
$68.42 |
52 Week Low (on 9/29/2015): |
$56.25 |
The following graph sets forth the daily share closing prices
of the EFA Shares for each quarter in the period from January 1, 2010 through September 30, 2015. The related table sets forth
the published high and low share closing prices, as well as end-of-quarter share closing prices, of the EFA Shares for each quarter
in the same period. The share closing price of the EFA Shares on September 30, 2015 was $57.32. We obtained the information in
the table and graph below from Bloomberg Financial Markets without independent verification. The EFA Shares have at times experienced
periods of high volatility. You should not take the historical prices of the EFA Shares as an indication of future performance,
and no assurance can be given as to the share closing price of the EFA Shares on the calculation day.
Shares of the iShares® MSCI EAFE ETF
Daily Share Closing Prices
January 1, 2010 to September 30, 2015 |
|
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
iShares®
MSCI EAFE ETF (CUSIP 464287465) |
High
($) |
Low
($) |
Period
End ($) |
2010 |
|
|
|
First Quarter |
57.96 |
50.45 |
56.00 |
Second Quarter |
58.03 |
46.29 |
46.51 |
Third Quarter |
55.42 |
47.09 |
54.92 |
Fourth Quarter |
59.46 |
54.25 |
58.23 |
2011 |
|
|
|
First Quarter |
61.91 |
55.31 |
60.09 |
Second Quarter |
63.87 |
57.10 |
60.14 |
Third Quarter |
60.80 |
46.66 |
47.75 |
Fourth Quarter |
55.57 |
46.45 |
49.53 |
2012 |
|
|
|
First Quarter |
55.80 |
49.15 |
54.90 |
Second Quarter |
55.51 |
46.55 |
49.96 |
Third Quarter |
55.15 |
47.62 |
53.00 |
Fourth Quarter |
56.88 |
51.96 |
56.82 |
2013 |
|
|
|
First Quarter |
59.89 |
56.90 |
58.98 |
Second Quarter |
63.53 |
57.03 |
57.38 |
Third Quarter |
65.05 |
57.55 |
63.79 |
Fourth Quarter |
67.06 |
62.71 |
67.06 |
2014 |
|
|
|
First Quarter |
68.03 |
62.31 |
67.17 |
Second Quarter |
70.67 |
66.26 |
68.37 |
Third Quarter |
69.25 |
64.12 |
64.12 |
Fourth Quarter |
64.51 |
59.53 |
60.84 |
2015 |
|
|
|
First Quarter |
65.99 |
58.48 |
64.17 |
Second Quarter |
68.42 |
63.49 |
63.49 |
Third Quarter |
65.46 |
56.25 |
57.32 |
This document relates only to the securities referenced hereby
and does not relate to the EFA Shares. We have derived all disclosures contained in this document regarding iShares from the publicly
available documents described above. In connection with the offering of the securities, neither we nor either agent has participated
in the preparation of such documents or made any due diligence inquiry with respect to iShares. Neither we nor either agent makes
any representation that such publicly available documents or any other publicly available information regarding iShares is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the EFA Shares (and therefore the price of the EFA Shares at the time we priced the securities) have been publicly disclosed.
Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning iShares
could affect the value received at maturity with respect to the securities and therefore the value of the securities.
Neither we, the agents nor any of our or their affiliates
makes any representation to you as to the performance of the EFA Shares.
We and/or our affiliates may presently or from time to time engage
in business with iShares. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to iShares, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more
of our affiliates may publish research reports with respect to the EFA Shares. The statements in the preceding two sentences are
not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the securities,
you should undertake an independent investigation of iShares as in your judgment is appropriate to make an informed decision with
respect to an investment in the EFA Shares.
“iShares®” is a registered mark
of BTC. The securities are not sponsored, endorsed, sold, or promoted by BTC. BTC makes no representations or warranties to the
owners of the securities or any member of the public regarding
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
the advisability of investing in the securities. BTC has no
obligation or liability in connection with the operation, marketing, trading or sale of the securities.
The MSCI EAFE IndexSM.
The MSCI EAFE IndexSM is a stock index calculated, published and disseminated daily by MSCI Inc. (“MSCI”).
The index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed
markets, excluding the United States and Canada, and it consists of the following 21 developed market country indices: Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. For additional information about the MSCI EAFE IndexSM,
see the information set forth under “MSCI EAFE IndexSM” and “MSCI Global Investable Market Indices
Methodology” in the accompanying index supplement.
MSCI has announced that, effective with the November 2015 semi-annual
index review, certain securities traded outside of their country of classification (i.e., “foreign listings”) will
become eligible for inclusion in certain MSCI Country Investable Market Indexes within the MSCI Global Investable Market Indices.
Foreign listings may become eligible to represent securities only from countries that meet the Foreign Listing Materiality Requirement.
To meet the Foreign Listing Materiality Requirement, the aggregate market capitalization of all securities represented by foreign
listings should represent at least (i) 5% of the free float-adjusted market capitalization of the relevant MSCI Country Investable
Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI ACWI (All Country World Index) Investable
Market Index.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
iShares® MSCI Emerging Markets
ETF Overview
The iShares® MSCI Emerging Markets ETF is an exchange-traded
fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
MSCI Emerging Markets Index®. The iShares® MSCI Emerging Markets ETF is managed by iShares, a registered
investment company that consists of numerous separate investment portfolios, including the iShares® MSCI Emerging
Markets ETF. Information provided to or filed with the Commission by iShares pursuant to the Securities Act of 1933 and the Investment
Company Act of 1940 can be located by reference to Commission file numbers 033-97598 and 811-09102, respectively, through the Commission’s
website at www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases,
newspaper articles and other publicly disseminated documents. Neither the issuer nor the agents make any representation that such
publicly available documents or any other publicly available information regarding the iShares® MSCI Emerging Markets
ETF is accurate or complete.
Information as of market close on September 30, 2015:
Bloomberg
Ticker Symbol: |
EEM UP |
Current
Share Closing Price: |
$32.78 |
52 Weeks Ago: |
$41.56 |
52 Week High (on 4/28/2015): |
$44.09 |
52 Week Low (on 8/24/2015): |
$31.32 |
The following graph sets forth the daily share closing prices
of the EEM Shares for each quarter in the period from January 1, 2010 through September 30, 2015. The related table sets forth
the published high and low share closing prices, as well as end-of-quarter share closing prices, of the EEM Shares for each quarter
in the same period. The share closing price of the EEM Shares on September 30, 2015 was $32.78. We obtained the information in
the table and graph below from Bloomberg Financial Markets without independent verification. The EEM Shares have at times experienced
periods of high volatility. You should not take the historical prices of the EEM Shares as an indication of future performance,
and no assurance can be given as to the share closing price of the EEM Shares on the calculation day.
Shares of the iShares®
MSCI Emerging Markets ETF
Daily Share Closing Prices
January 1, 2010 to September
30, 2015
|
|
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
iShares®
MSCI Emerging Markets ETF (CUSIP 61759G182) |
High
($) |
Low
($) |
Period
End ($) |
2010 |
|
|
|
First
Quarter |
43.22 |
36.83 |
42.12 |
Second
Quarter |
43.98 |
36.16 |
37.32 |
Third
Quarter |
44.77 |
37.59 |
44.77 |
Fourth
Quarter |
48.58 |
44.77 |
47.62 |
2011 |
|
|
|
First
Quarter |
48.69 |
44.63 |
48.69 |
Second
Quarter |
50.21 |
45.50 |
47.60 |
Third
Quarter |
48.46 |
34.95 |
35.07 |
Fourth
Quarter |
42.80 |
34.36 |
37.94 |
2012 |
|
|
|
First
Quarter |
44.76 |
38.23 |
42.94 |
Second
Quarter |
43.54 |
36.68 |
39.19 |
Third
Quarter |
42.37 |
37.42 |
41.32 |
Fourth
Quarter |
44.35 |
40.14 |
44.35 |
2013 |
|
|
|
First
Quarter |
45.20 |
41.80 |
42.78 |
Second
Quarter |
44.23 |
36.63 |
38.57 |
Third
Quarter |
43.29 |
37.34 |
40.77 |
Fourth
Quarter |
43.66 |
40.44 |
41.77 |
2014 |
|
|
|
First
Quarter |
40.99 |
37.09 |
40.99 |
Second
Quarter |
43.95 |
40.82 |
43.23 |
Third
Quarter |
45.85 |
41.56 |
41.56 |
Fourth
Quarter |
42.44 |
37.73 |
39.29 |
2015 |
|
|
|
First Quarter |
41.07 |
37.92 |
40.13 |
Second Quarter |
44.09 |
39.04 |
39.62 |
Third Quarter |
39.78 |
31.32 |
32.78 |
This document relates only to the securities referenced hereby
and does not relate to the EEM Shares. We have derived all disclosures contained in this document regarding iShares from the publicly
available documents described above. In connection with the offering of the securities, neither we nor either agent has participated
in the preparation of such documents or made any due diligence inquiry with respect to iShares. Neither we nor either agent makes
any representation that such publicly available documents or any other publicly available information regarding iShares is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the EEM Shares (and therefore the price of the EEM Shares at the time we priced the securities) have been publicly disclosed.
Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning iShares
could affect the redemption amount received at maturity with respect to the securities and therefore the value of the securities.
Neither we, the agents nor any of our or their affiliates
makes any representation to you as to the performance of the EEM Shares.
We and/or our affiliates may presently or from time to time engage
in business with iShares. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to iShares, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more
of our affiliates may publish research reports with respect to the EEM Shares. The statements in the preceding two sentences are
not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the securities,
you should undertake an independent investigation of iShares as in your judgment is appropriate to make an informed decision with
respect to an investment linked to the EEM Shares.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
iShares® is a registered trademark of BTC.
The securities are not sponsored, endorsed, sold, or promoted by BTC. BTC makes no representations or warranties to the owners
of the securities or any member of the public regarding the advisability of investing in the securities. BTC has no obligation
or liability in connection with the operation, marketing, trading or sale of the securities.
The MSCI Emerging
Markets IndexSM. The MSCI Emerging Markets IndexSM
is a stock index calculated, published and disseminated daily by MSCI and is intended to provide performance benchmarks for certain
emerging equity markets including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea,
Malaysia, Mexico, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The
MSCI Emerging Markets IndexSM is described in “MSCI Emerging Markets IndexSM” and “MSCI
Global Investable Market Indices Methodology” in the accompanying index supplement.
MSCI has announced that, effective with the November 2015 semi-annual
index review, certain securities traded outside of their country of classification (i.e., “foreign listings”) will
become eligible for inclusion in certain MSCI Country Investable Market Indexes within the MSCI Global Investable Market Indices.
Foreign listings may become eligible to represent securities only from countries that meet the Foreign Listing Materiality Requirement.
To meet the Foreign Listing Materiality Requirement, the aggregate market capitalization of all securities represented by foreign
listings should represent at least (i) 5% of the free float-adjusted market capitalization of the relevant MSCI Country Investable
Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI ACWI (All Country World Index) Investable
Market Index.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
PowerShares DB Commodity Index Tracking Fund
Overview
The PowerShares DB Commodity Index Tracking Fund is an exchange-traded
fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
DBIQ Optimum Yield Diversified Commodity Index – Excess ReturnTM. The PowerShares DB Commodity Index Tracking
Fund is managed by Invesco PowerShares Capital Management LLC (“Invesco”), a registered investment company that consists
of numerous separate investment portfolios, including the PowerShares DB Commodity Index Tracking Fund. Information provided to
or filed with the Commission by the fund pursuant to the Securities Act of 1933 can be located by reference to Commission file
numbers 333-141631 and 333-150217 through the Commission’s website at http://www.sec.gov. In addition, information may be
obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents.
Neither the issuer nor the agents make any representation that such publicly available documents or any other publicly available
information regarding the PowerShares DB Commodity Index Tracking Fund is accurate or complete.
Information as of market close on September 30, 2015:
Bloomberg
Ticker Symbol: |
DBC UP |
Current
Share Closing Price: |
$15.15 |
52 Weeks Ago: |
$23.22 |
52 Week High (on 9/30/2014): |
$23.22 |
52 Week Low (on 8/26/2015): |
$14.41 |
The following graph sets forth the daily share closing prices
of the DBC Shares for each quarter in the period from January 1, 2010 through September 30, 2015. The related table sets forth
the published high and low share closing prices, as well as end-of-quarter share closing prices, of the DBC Shares for each quarter
in the same period. The share closing price of the DBC Shares on September 30, 2015 was $15.15. We obtained the information in
the table and graph below from Bloomberg Financial Markets without independent verification. The DBC Shares have at times experienced
periods of high volatility. You should not take the historical prices of the DBC Shares as an indication of future performance,
and no assurance can be given as to the share closing price of the DBC Shares on the calculation day.
Shares of the PowerShares DB Commodity Index Tracking Fund
Daily Share Closing Prices
January 1, 2010 to September 30, 2015 |
|
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
PowerShares
DB Commodity Index Tracking Fund (CUSIP 73935S105) |
High
($) |
Low
($) |
Period
End ($) |
2010 |
|
|
|
First Quarter |
25.72 |
22.38 |
23.52 |
Second Quarter |
24.70 |
21.25 |
21.57 |
Third Quarter |
24.11 |
21.20 |
24.11 |
Fourth Quarter |
27.58 |
24.08 |
27.58 |
2011 |
|
|
|
First Quarter |
30.51 |
27.13 |
30.51 |
Second Quarter |
31.92 |
28.25 |
28.96 |
Third Quarter |
30.83 |
25.73 |
25.73 |
Fourth Quarter |
28.54 |
25.57 |
26.84 |
2012 |
|
|
|
First Quarter |
29.78 |
27.29 |
28.78 |
Second Quarter |
29.17 |
24.15 |
25.75 |
Third Quarter |
29.73 |
25.70 |
28.68 |
Fourth Quarter |
28.95 |
27.14 |
27.78 |
2013 |
|
|
|
First Quarter |
28.59 |
26.84 |
27.31 |
Second Quarter |
27.31 |
25.13 |
25.13 |
Third Quarter |
27.02 |
25.29 |
25.76 |
Fourth Quarter |
26.29 |
25.09 |
25.65 |
2014 |
|
|
|
First Quarter |
26.49 |
24.70 |
26.13 |
Second Quarter |
26.92 |
25.74 |
26.58 |
Third Quarter |
26.50 |
23.22 |
23.22 |
Fourth Quarter |
23.14 |
18.45 |
18.45 |
2015 |
|
|
|
First Quarter |
18.31 |
16.81 |
17.07 |
Second Quarter |
18.46 |
17.26 |
18.00 |
Third Quarter |
17.78 |
14.41 |
15.15 |
This document relates only to the securities referenced hereby
and does not relate to the DBC Shares. We have derived all disclosures contained in this document regarding Invesco from the publicly
available documents described above. In connection with the offering of the securities, neither we nor either agent has participated
in the preparation of such documents or made any due diligence inquiry with respect to Invesco. Neither we nor either agent makes
any representation that such publicly available documents or any other publicly available information regarding Invesco is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the DBC Shares (and therefore the price of the DBC Shares at the time we priced the securities) have been publicly disclosed.
Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Invesco
could affect the value received at maturity with respect to the securities and therefore the value of the securities.
Neither we, the agents nor any of our or their affiliates
makes any representation to you as to the performance of the DBC Shares.
We and/or our affiliates may presently or from time to time engage
in business with Invesco. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to Invesco, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more
of our affiliates may publish research reports with respect to the DBC Shares. The statements in the preceding two sentences are
not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the securities,
you should undertake an independent investigation of Invesco as in your judgment is appropriate to make an informed decision with
respect to an investment in the DBC Shares.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
DBIQ Optimum Yield
Diversified Commodity Index – Excess ReturnTM. The DBIQ Optimum Yield
Diversified Commodity Index – Excess ReturnTM (the “index”) is intended to reflect the change in market value
of certain commodities. The index is (i) calculated on an excess return, or unfunded basis and (ii) rolled in a manner that is
aimed at potentially maximizing the roll benefits in backwardated markets and minimizing the losses from rolling in contangoed
markets. The index commodities are Light Sweet Crude Oil (WTI), Heating Oil, RBOB Gasoline, Natural Gas, Brent Crude, Gold, Silver,
Aluminum, Zinc, Copper Grade A, Corn, Wheat, Soybeans, and Sugar.
The notional amounts of each index commodity
included in the index are broadly in proportion to historic levels of the world’s production and stocks of the index commodities.
The closing level of the index is calculated on each business day by Deutsche Bank AG London, the Index Sponsor, based on the closing
price of the futures contracts for each of the index commodities and the notional amount of such index commodity.
The index is rebalanced annually in November to ensure that each
of the index commodities is weighted in the same proportion that such index commodities were weighted on July 31, 1988, or the
base date. The following table reflects the index base weights of each index commodity on the base date:
Index Commodity |
Index Base Weight (%) |
Light Sweet Crude Oil (WTI) |
12.375 |
Heating Oil |
12.375 |
RBOB Gasoline |
12.375 |
Natural Gas |
5.500 |
Brent Crude |
12.375 |
Gold |
8.000 |
Silver |
2.000 |
Aluminum |
4.167 |
Zinc |
4.167 |
Copper Grade A |
4.167 |
Corn |
5.625 |
Wheat |
5.625 |
Soybeans |
5.625 |
Sugar |
5.625 |
Closing Level on Base Date: |
100.000 |
The index has been calculated back to the
base date. On the base date, the closing level was 100.
The index commodities are traded on the
following futures exchanges: Light Sweet Crude Oil (WTI), Heating Oil, RBOB Gasoline and Natural Gas: New York Mercantile Exchange;
Brent Crude: ICEFutures Europe; Gold and Silver: Commodity Exchange Inc., New York; Aluminum, Zinc and Copper Grade A: The London
Metal Exchange Limited; Corn, Wheat and Soybeans: Board of Trade of the City of Chicago Inc.; and Sugar: ICE Futures U.S., Inc.
The composition of the index may be adjusted
in the event that the Index Sponsor is not able to calculate the closing prices of the index commodities.
The index includes provisions for the replacement
of futures contracts as they approach maturity. This replacement takes place over a period of time in order to lessen the impact
on the market for the futures contracts being replaced. With respect to each index commodity, the fund employs a rule-based approach
when it ‘rolls’ from one futures contract to another. Rather than select a new futures contract based on a predetermined
schedule (e.g., monthly), each index commodity rolls to the futures contract which generates the best possible ‘implied roll
yield.’ The futures contract with a delivery month within the next thirteen months which generates the best possible implied
roll yield will be included in the index.
The futures contract price for each index
commodity will be the exchange closing price for such index commodity on each weekday when banks in New York, New York are open,
or Index Business Days. If a weekday is not an Exchange Business Day (as defined in the following sentence) but is an Index Business
Day, the exchange closing price from the previous Index Business Day will be used for each index commodity. “Exchange Business
Day” means, in respect of an index commodity, a
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
day that is a trading day for such index
commodity on the relevant exchange (unless either an index disruption event or force majeure event has occurred).
On the first New York business day, or Verification
Date, of each month, each index commodity futures contract will be tested in order to determine whether to continue including it
in the index. If the index commodity futures contract requires delivery of the underlying commodity in the next month, known as
the Delivery Month, a new index commodity futures contract will be selected for inclusion in the index. For example, if the first
New York business day is May 1, 2016, and the Delivery Month of the index commodity futures contract currently in the index is
June 2016, a new index commodity futures contract with a later Delivery Month will be selected.
For each underlying index commodity in the
index, the new index commodity futures contract selected will be the index commodity futures contract with the best possible “implied
roll yield” based on the closing price for each eligible index commodity futures contract. Eligible index commodity futures
contracts are any index commodity futures contracts having a Delivery Month (i) no sooner than the month after the Delivery Month
of the index commodity futures contract currently in the index, and (ii) no later than the 13th month after the Verification Date.
For example, if the first New York business day is May 1, 2016 and the Delivery Month of an index commodity futures contract currently
in the index is therefore June 2016, the Delivery Month of an eligible new index commodity futures contract must be between July
2016 and July 2017. The implied roll yield is then calculated and the futures contract on the index commodity with the best possible
implied roll yield is then selected. If two futures contracts have the same implied roll yield, the futures contract with the minimum
number of months prior to the Delivery Month is selected.
After the futures contract selection, the
monthly roll for each index commodity subject to a roll in that particular month unwinds the old futures contract and enters a
position in the new futures contract. This takes place between the 2nd and 6th Index Business Day of the month.
On each day during the roll period, new
notional holdings are calculated. The calculations for the old index commodity that are leaving the index and the new index commodity
are then calculated.
On all days that are not monthly index roll
days, the notional holdings of each index commodity future remains constant.
The index is re-weighted on an annual basis
on the 6th Index Business Day of each November.
The index calculation is expressed as the
weighted average return of the index commodity.
While the Index Sponsor currently employs the above described
methodology to calculate the index, no assurance can be given that fiscal, market, regulatory, juridical or financial circumstances
(including, but not limited to, any changes to or any suspension or termination of or any other events affecting any index commodity
or a futures contract) will not arise that would, in the view of the Index Sponsor, necessitate a modification of or change to
such methodology and in such circumstances the Index Sponsor may make any such modification or change as it determines appropriate.
The Index Sponsor may also make modifications to the terms of the index in any manner that it may deem necessary or desirable,
including (without limitation) to correct any manifest or proven error or to cure, correct or supplement any defective provision
of the index.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Vanguard REIT ETF Overview
The Vanguard REIT ETF is an exchange-traded fund that seeks investment
results that correspond generally to the price and yield performance, before fees and expenses, of the property trusts sector of
the U.S. equity market, as represented by the MSCI US REIT Index. The Vanguard REIT ETF is registered as part of Vanguard Specialized
Funds (“Vanguard”), a registered investment company. Information provided to or filed with the Commission by Vanguard
Specialized Funds pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to
Commission file numbers 002-88116 and 811-3916, respectively, through the Commission’s website at http://www.sec.gov. In
addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and
other publicly disseminated documents. Neither the issuer nor the agents make any representation that such publicly available documents
or any other publicly available information regarding the Vanguard REIT ETF is accurate or complete.
Information as of market close on September 30, 2015:
Bloomberg
Ticker Symbol: |
VNQ UP |
Current
Share Closing Price: |
$75.54 |
52 Weeks Ago: |
$71.85 |
52 Week High (on 1/27/2015): |
$88.65 |
52 Week Low (on 10/2/2014): |
$71.79 |
The following graph sets forth the daily share closing prices
of the VNQ Shares for each quarter in the period from January 1, 2010 through September 30, 2015. The related table sets forth
the published high and low share closing prices, as well as end-of-quarter share closing prices, of the VNQ Shares for each quarter
in the same period. The share closing price of the VNQ Shares on September 30, 2015 was $75.54. We obtained the information in
the table and graph below from Bloomberg Financial Markets without independent verification. The VNQ Shares have at times experienced
periods of high volatility. You should not take the historical prices of the VNQ Shares as an indication of future performance,
and no assurance can be given as to the share closing price of the VNQ Shares on the calculation day.
Shares of the Vanguard REIT ETF
Daily Share Closing Prices
January 1, 2010 to September 30, 2015 |
|
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
Vanguard
REIT ETF (CUSIP 922908553) |
High
($) |
Low
($) |
Period
End ($) |
2010 |
|
|
|
First Quarter |
49.80 |
41.04 |
48.82 |
Second Quarter |
54.04 |
46.26 |
46.49 |
Third Quarter |
54.63 |
44.39 |
52.08 |
Fourth Quarter |
57.29 |
52.03 |
55.37 |
2011 |
|
|
|
First Quarter |
59.86 |
54.89 |
58.49 |
Second Quarter |
62.68 |
57.39 |
60.10 |
Third Quarter |
63.18 |
48.88 |
50.87 |
Fourth Quarter |
58.80 |
48.47 |
58.00 |
2012 |
|
|
|
First Quarter |
63.62 |
57.49 |
63.61 |
Second Quarter |
66.18 |
60.57 |
65.43 |
Third Quarter |
68.76 |
64.79 |
64.97 |
Fourth Quarter |
66.43 |
62.06 |
65.80 |
2013 |
|
|
|
First Quarter |
70.53 |
66.61 |
70.53 |
Second Quarter |
78.15 |
65.68 |
68.72 |
Third Quarter |
72.55 |
63.50 |
66.16 |
Fourth Quarter |
71.05 |
64.20 |
64.56 |
2014 |
|
|
|
First Quarter |
71.79 |
64.57 |
70.62 |
Second Quarter |
76.41 |
70.47 |
74.84 |
Third Quarter |
77.92 |
71.35 |
71.85 |
Fourth Quarter |
82.45 |
71.79 |
81.00 |
2015 |
|
|
|
First Quarter |
88.65 |
80.37 |
84.07 |
Second Quarter |
85.71 |
74.69 |
74.69 |
Third Quarter |
80.73 |
72.20 |
75.54 |
This document relates only to the securities referenced hereby
and does not relate to the VNQ Shares. We have derived all disclosures contained in this document regarding Vanguard from the publicly
available documents described above. In connection with the offering of the securities, neither we nor either agent has participated
in the preparation of such documents or made any due diligence inquiry with respect to Vanguard. Neither we nor either agent makes
any representation that such publicly available documents or any other publicly available information regarding Vanguard is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the VNQ Shares (and therefore the price of the VNQ Shares at the time we priced the securities) have been publicly disclosed.
Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Vanguard
could affect the value received at maturity with respect to the securities and therefore the value of the securities.
Neither we, the agents nor any of our or their affiliates
makes any representation to you as to the performance of the VNQ Shares.
We and/or our affiliates may presently or from time to time engage
in business with Vanguard. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to Vanguard, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more
of our affiliates may publish research reports with respect to the VNQ Shares. The statements in the preceding two sentences are
not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the securities,
you should undertake an independent investigation of Vanguard as in your judgment is appropriate to make an informed decision with
respect to an investment in the VNQ Shares.
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
The MSCI U.S. REIT
Index. The MSCI US REIT Index is a free float market capitalization weighted index that is
comprised of publicly traded REIT companies that are included in the MSCI US Investable Market 2500 Index. The MSCI US Investable
Market 2500 Index represents the investable universe of companies in the US equity market. This index targets for inclusion 2,500
companies and represents approximately 98% of the capitalization of the US equity market.
MSCI classifies REIT securities into one of the nine Real Estate
Investment Trust (REIT) Sub-Industries. The nine REIT Sub-Industries aim to represent the following property type profiles:
REITs eligible for inclusion in the MSCI US REIT Index are REITs
that are included in the MSCI US Investable Market 2500 Index, with the exception of:
| · | REITs classified in the Mortgage REITs Sub-Industry; and |
| · | REITs classified in the Specialized REITs Sub-Industry that do not generate a majority of their revenue and income from real
estate rental and related leasing operations. |
| · | Companies classified under the Real Estate Management & Development Sub-Industry are not eligible for inclusion in the
MSCI US REIT Index. |
Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
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. Notwithstanding anything to the contrary in the accompanying
product supplement for PLUS, the amount you will receive at maturity will be the redemption amount, defined and calculated as provided
in this document.
Additional provisions: |
|
Denominations: |
$1,000 and integral multiples thereof |
Share underlying indices: |
With respect to the SPY Shares, the S&P 500®
Index
With respect to the IWM Shares, the Russell 2000®
Index
With respect to the EFA Shares, the MSCI EAFE IndexSM
With respect to the EEM Shares, the MSCI Emerging Markets IndexSM
With respect to the DBC Shares, the DBIQ Optimum Yield Diversified
Commodity Index – Excess ReturnTM
With respect to the VNQ Shares, the MSCI U.S. REIT Index
|
Securities: |
The accompanying product supplement refers to the securities as the “PLUS,” “Buffered PLUS” and “Bull Market Buffered PLUS.” |
Basket: |
The accompanying product supplement refers to the basket as the “underlying asset.” |
Basket components: |
The accompanying product supplement refers to each of the basket components as a “basket ETF.” |
Face amount: |
The accompanying product supplement refers to the face amount as the “stated principal amount.” |
Calculation day: |
The accompanying product supplement refers to the calculation day as the “valuation date.” |
Redemption amount: |
The accompanying product supplement refers to the redemption amount as the “payment at maturity.” |
Share closing price: |
See “Description of PLUS—General Terms of PLUS—Some Definitions” in the accompanying product supplement for the definition of share closing price. |
Starting level: |
The accompanying product supplement refers to the starting level as the “initial basket value.” |
Ending level: |
The accompanying product supplement refers to the ending level as the “final basket value.” |
Closing value: |
The accompanying product supplement refers to the closing value as the “basket component closing value.” |
Capped value: |
The accompanying product supplement refers to the capped value as the “maximum payment at maturity.” |
Participation rate: |
The accompanying product supplement refers to the participation rate as the “leverage factor.” |
Postponement of maturity date: |
If the scheduled calculation day is not a trading day for any basket component or if a market disruption event occurs with respect to any basket component on that day so that the calculation day for such basket component as postponed 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 the last calculation day as postponed. See “Description of PLUS—Postponement of Valuation Date(s)” in the accompanying product supplement for PLUS. |
Minimum ticketing size: |
$1,000 / 1 security |
Tax considerations: |
Although there is uncertainty regarding
the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in the opinion
of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a security should be
treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
Assuming this treatment of the securities
is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement
for PLUS, the following U.S. federal income tax consequences should result based on current law:
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§ A
U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than
pursuant to a sale or exchange.
§ Upon
sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the
amount realized and the U.S. Holder’s tax basis in the securities. Subject to the discussion below concerning
the potential application of the “constructive ownership” rule, such gain or loss should be long-term capital gain
or loss if the investor has held the securities for more than one year, and
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Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
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short-term capital
gain or loss otherwise.
Because the securities are linked
to shares of exchange-traded funds, although the matter is not clear, there is a substantial risk that an investment in the securities
will be treated as a “constructive ownership transaction” under Section 1260 of the Internal Revenue Code of 1986,
as amended (the “Code”). If this treatment applies, all or a portion of any long-term capital gain of the U.S. Holder
in respect of the securities could be recharacterized as ordinary income (in which case an interest charge will be imposed). Due
to the lack of governing authority, our counsel is unable to opine as to whether or how Section 1260 of the Code applies to the
securities. U.S. investors should read the section entitled “United States Federal Taxation—Tax Consequences to U.S.
Holders—Tax Treatment of the PLUS—Possible Application of Section 1260 of the Code” in the accompanying product
supplement for PLUS for additional information and consult their tax advisers regarding the potential application of the “constructive
ownership” rule.
In 2007,
the U.S. Treasury Department and the Internal Revenue Service (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 in
particular on whether to require holders of these 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; the degree, if any, to which
income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these
instruments are or should be subject to the “constructive ownership” rule, as discussed above. While the notice requests
comments on appropriate transition rules and effective dates, 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.
As
discussed under “United States Federal Taxation – Tax Consequences to Non-U.S. Holders – Possible Application
of Section 871(m) of the Code” in the accompanying product supplement for PLUS, Section 871(m) of the Code, imposes a 30%
withholding tax on certain “dividend equivalents” paid or deemed paid with respect to U.S. equities or equity indices
under certain circumstances. However, in light of recently promulgated Treasury regulations under Section 871(m) of the Code,
the withholding tax generally will not apply to the securities.
Both U.S.
and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for
PLUS and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the securities,
including possible alternative treatments, the potential application of the constructive ownership rule, the issues presented by
the aforementioned notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
The discussion in the preceding paragraphs under “Tax
considerations” and the discussion contained in the section entitled “United States Federal Taxation” in the
accompanying product supplement for PLUS, insofar as they purport to describe provisions of U.S. federal income tax laws or legal
conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal
tax consequences of an investment in the securities.
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Trustee: |
The Bank of New York Mellon |
Calculation agent: |
Morgan Stanley & Co. LLC (“MS & Co.”) |
Use of proceeds and hedging: |
The proceeds we receive from the sale of
the securities will be used 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 subsidiaries and/or
third party dealers. We expect our hedging counterparties to have taken positions in the basket components, in futures and/or options
contracts on the basket components, the components of the basket components or the share underlying indices and other financial
instruments related to the basket components listed on major securities markets. Such purchase activity could have increased the
initial basket component values, and, therefore, could have increased the values at or above which the basket components must close
on the calculation day so that investors do not suffer a loss on their initial investment in the securities. In addition, through
our subsidiaries, we are likely to modify our hedge position throughout the life of the securities, including on the calculation
day, by purchasing and selling the basket components or the components of the basket components and other financial instruments
related to the basket components, futures or options contracts on the basket components or components of the basket components
and other financial instruments related to the basket components listed on major securities markets or
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Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
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positions in 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 calculation day approaches. We cannot give any assurance that our hedging activities will not affect the values
of the basket components, and, therefore, adversely affect the value of the securities or the payment you will receive at maturity.
For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product
supplement for PLUS.
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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 subsidiaries
and affiliates, including MS & Co., may be considered a “party in interest” within the meaning of ERISA, or a “disqualified
person” within the meaning of 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 Section 4975(d)(20) of the Code 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
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Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
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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
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities
has exclusive responsibility for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited
transaction rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law
is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant
legal requirements with respect to investments by plans generally or any particular plan, or that such an investment is appropriate
for plans generally or any particular plan.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations: |
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: |
MS & Co. and WFS will act as the agents
for this offering. WFS will receive a commission of $34.90 for each security it sells. WFS proposes to offer the securities in
part directly to the public at the price to public set forth on the cover page of this document and in part to Wells Fargo Advisors,
LLC (“WFA”), an affiliate of WFS, or other securities dealers at such price less a selling concession of $15.00 per
security. In addition to the selling concession allowed to WFA, WFS will pay $0.75 per security of the commission to WFA as a distribution
expense fee for each security sold by WFA.
See "Plan of Distribution (Conflicts
of Interest)" in the accompanying product supplement for PLUS for information about the distribution arrangements for the
securities. References therein to "agent" refer to each of MS & Co. and WFS, as agents for this offering, except
that references to "agent" in the context of offers to certain Morgan Stanley dealers and compliance with FINRA Rule
5121 do not apply to WFS. MS & Co., WFS or their affiliates may enter into hedging transactions with us in connection with
this offering.
MS & Co. is our wholly-owned
subsidiary and it and other subsidiaries of ours expect to make a
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Securities Linked to an ETF Basket due April 6, 2020—Leveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities
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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 PLUS.
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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. |
Validity of the securities: |
In the opinion of Davis Polk & Wardwell LLP, as special counsel to Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by Morgan Stanley, authenticated by the trustee pursuant to the Senior Debt Indenture and delivered against payment as contemplated herein, such securities will be valid and binding obligations 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 the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above. This opinion is given as of the date hereof and is limited to the laws of the State of New York and the General Corporation Law of the State of Delaware. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 19, 2014, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 19, 2014. |
Where you can find more information: |
Morgan Stanley has filed a registration
statement (including a prospectus, as supplemented by the product supplement for PLUS and the index supplement) 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 PLUS, the index supplement and any other documents relating to this offering that Morgan
Stanley has filed with the SEC for more complete information about 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, Morgan Stanley
will arrange to send you the product supplement for PLUS, index supplement and prospectus if you so request by calling toll-free
800-584-6837.
You may access these documents on the SEC
web site at.www.sec.gov. as follows:
Product Supplement for PLUS dated November 19, 2014
Index Supplement dated November 19, 2014
Prospectus dated November 19, 2014
Terms used but not defined in this document
are defined in the product supplement for PLUS, in the index supplement or in the prospectus. As used in this document, the “Company,”
“we,” “us” and “our” refer to Morgan Stanley.
“Performance Leveraged Upside SecuritiesSM”
and “PLUSSM” are our service marks.
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