￭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 notes in the original issue
price reduce the economic terms of the notes, cause the estimated
value of the notes to be less than the original issue price and
will adversely affect secondary market prices.
Assuming no change in market conditions or
any other relevant factors, the prices, if any, at which dealers,
including MS & Co., may be willing to purchase the notes in
secondary market transactions will likely be significantly lower
than the original issue price, because secondary market prices will
exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and
because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer
would charge in a secondary market transaction of this type as well
as other factors.
The inclusion of the costs of issuing,
selling, structuring and hedging the notes in the original issue
price and the lower rate we are willing to pay as issuer make the
economic terms of the notes less favorable to you than they
otherwise would be.
However, because the costs associated with
issuing, selling, structuring and hedging the notes 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
notes in the secondary market, absent changes in market conditions,
including those related to the underlying index, 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 notes 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 notes than those generated by others,
including other dealers in the market, if they attempted to value
the notes. 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 notes in
the secondary market (if any exists) at any time. The value of your
notes 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 of the notes will be influenced by many
unpredictable factors” above.
￭Investing
in the notes is not equivalent to investing in the underlying
index. Investing in the notes is not equivalent
to investing in the underlying index or its component stocks. As an
investor in the notes, you will not have voting rights or rights to
receive dividends or other distributions or any other rights with
respect to stocks that constitute the underlying index. See
“Hypothetical Payout on the Notes” above.
￭The
notes will not be listed on any securities exchange and secondary
trading may be limited. The notes will not be listed on any
securities exchange. Therefore, there may be little or no secondary
market for the notes. MS & Co. may, but is not obligated to,
make a market in the notes and, if it once chooses to make a
market, may cease doing so at any time. When it does make a market,
it will generally do so for transactions of routine secondary
market size at prices based on its estimate of the current value of
the notes, taking into account its bid/offer spread, our credit
spreads, market volatility, the notional size of the proposed sale,
the cost of unwinding any related hedging positions, the time
remaining to maturity and the likelihood that it will be able to
resell the notes. Even if there is a secondary market, it may not
provide enough liquidity to allow you to trade or sell the notes
easily. Since other broker-dealers may not participate
significantly in the secondary market for the notes, the price at
which you may be able to trade your notes is likely to depend on
the price, if any, at which MS & Co. is willing to transact.
If, at any time, MS & Co. were to cease making a market in the
notes, it is likely that there would be no secondary market for the
notes. Accordingly, you should be willing to hold your notes to
maturity.
￭The
calculation agent, which is a subsidiary of Morgan Stanley and an
affiliate of MSFL, will make determinations with respect to the
notes. As calculation agent, MS & Co. will
determine the initial index value and the final index value, and
will calculate the amount of cash you will 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 index
closing value in the event of a discontinuance of the 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
Equity-Linked Notes—Calculation Agent and Calculations,”
“—Alternate Exchange Calculation in the Case of an Event of
Default” and “—Discontinuance of Any Underlying Index; Alteration
of Method of Calculation” in the accompanying product supplement
for equity-linked notes. In addition, MS & Co. has determined
the estimated value of the notes on the pricing
date.
￭Hedging
and trading activity by our affiliates could potentially adversely
affect the value of the notes. One or more of our affiliates and/or
third-party dealers expect to carry out hedging activities related
to the notes (and to other instruments linked to the underlying
index or its component stocks), including trading in the stocks
that constitute the underlying index as well as
in