CALCULATION OF REGISTRATION FEE
|
|
Maximum Aggregate
|
|
Amount of Registration
|
Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
|
|
|
|
|
Contingent Income Auto- Callable Securities due 2020
|
|
$2,320,000
|
|
$268.89
|
|
|
|
|
|
Morgan Stanley Finance LLC
|
September 2017
Pricing Supplement No.
1,852
Registration Statement
Nos. 333-200365; 333-200365-12
Dated September 20,
2017
Filed pursuant to Rule
424(b)(2)
|
Structured
Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable Securities due
September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock
of Tesla, Inc.
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The securities are unsecured obligations of Morgan Stanley Finance
LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities have the terms
described in the accompanying product supplement and prospectus, as supplemented or modified by this document. The securities
do not guarantee the repayment of principal and do not provide for the regular payment of interest. Instead, the securities
will pay a contingent monthly coupon
but only if
the determination closing price of the underlying stock is
at or above
the downside threshold level of 56.25% of the initial share price on the related observation date. If, however,
the determination closing price is
less than
the downside threshold level on any observation date, we will pay no interest
for the related monthly period. In addition, the securities will be automatically redeemed if the determination closing
price is
greater than or equal to
the initial share price on any monthly redemption determination date (beginning approximately
six months after the original issue date) for the early redemption payment equal to the sum of the stated principal amount plus
the related contingent monthly coupon. At maturity, if the securities have not previously been redeemed and the final
share price is
greater than or equal to
the downside threshold level, the payment at maturity will be the stated principal
amount and the related contingent monthly coupon. If, however, the final share price is
less than
the downside
threshold level, investors will be fully exposed to the decline in the underlying stock on a 1-to-1 basis and will receive a payment
at maturity that is less than 56.25% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their entire initial investment and also the risk of
not receiving any contingent monthly coupons throughout the 3-year term of the securities.
The securities are for
investors who are willing to risk their principal and seek an opportunity to earn interest at a potentially above-market rate in
exchange for the risk of receiving no monthly coupons over the entire 3-year term. Investors will not participate in
any appreciation of the underlying stock. The securities are notes issued as part of MSFL’s Series A Global Medium-Term
Notes program.
All payments are subject to our credit risk. If
we default on our obligations, you could lose some or all of your investment. These securities are not secured obligations
and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
FINAL TERMS
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Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
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Morgan Stanley
|
Underlying stock:
|
Tesla, Inc. common stock
|
Aggregate principal amount:
|
$2,320,000
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security (see “Commissions and issue price” below)
|
Pricing date:
|
September 20, 2017
|
Original issue date:
|
September 25, 2017 (3 business days after the pricing date)
|
Maturity date:
|
September 24, 2020
|
Early redemption:
|
The securities are not subject to early redemption until six
months after the original issue date. Following this six-month initial non-call period, if, on any redemption determination
date, beginning on March 20, 2018, the determination closing price of the underlying stock is
greater than or equal to
the
initial share price, the securities will be automatically redeemed for an early redemption payment on the related early redemption
date. No further payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early on any early redemption
date if the determination closing price is below the initial share price on the related redemption determination date.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the contingent monthly coupon with respect to the related observation date.
|
Determination closing price:
|
The closing price of the underlying stock on any redemption determination date or observation date, as applicable, other than the final observation date,
times
the adjustment factor on such redemption determination date or observation date, as applicable
|
Redemption determination dates:
|
Monthly, beginning on March 20, 2018, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-trading days and certain market disruption events
|
Early redemption dates:
|
Monthly, beginning on March 23, 2018 (approximately six months after the original issue date), as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. If any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day
|
Contingent monthly coupon:
|
A
contingent
monthly coupon at an annual rate of
9.00%
(corresponding to approximately $7.50 per security per month)
will be paid on the securities on each coupon payment date
but
only if
the determination closing price of the underlying stock is at or above the downside threshold level on the related
observation date.
If, on any observation date, the determination closing price
is less than the downside threshold level, we will pay no coupon for the applicable monthly period. It is possible that
the underlying stock will remain below the downside threshold level for extended periods of time or even throughout the entire
3-year term of the securities so that you will receive few or no contingent monthly coupons.
|
Downside threshold level:
|
$210.324, which is equal to approximately 56.25% of the initial share price
|
Payment at maturity:
|
·
If
the final share price is
greater than or equal to
the downside threshold level: (i) the stated principal amount
plus
(ii) the contingent monthly coupon with respect to the final observation date; or
·
If
the final share price is
less than
the downside threshold level: (i) the stated principal amount
multiplied by
(ii)
the share performance factor. Under these circumstances, the payment at maturity will be less than 56.25% of the stated
principal amount and could be zero.
|
|
Terms continued on the following page
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
$947.40 per
security. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to us
(2)
|
Per security
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$1,000
|
$35
|
$965
|
Total
|
$2,320,000
|
$81,200
|
$2,238,800
|
|
(1)
|
Selected dealers and their financial advisors will
collectively receive from the agent, MS & Co., a fixed sales commission of $35 for each security they sell. See
“Supplemental information regarding plan of distribution; conflicts of interest.” For additional information, see
“Plan of Distribution (Conflicts of Interest)” in the accompanying product supplement.
|
|
(2)
|
See “Use of proceeds and hedging” on page
22.
|
The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 10.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement
and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Information About the Securities” at the end of this document.
References to “we,” “us” and “our”
refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product Supplement for Auto-Callable Securities dated February 29, 2016
Prospectus dated February 16, 2016
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Terms continued from previous page
:
|
Initial share price:
|
$373.91, which is equal to the closing price of the underlying stock on the pricing date.
|
Final share price:
|
The closing price of the underlying stock on the final observation date
times
the adjustment factor on such date
|
Coupon payment dates:
|
Monthly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Redemption Dates” below;
provided
that if any such day is not a business day, that coupon payment, if any, will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day;
provided further
that the contingent monthly coupon, if any, with respect to the final observation date will be paid on the maturity date
|
Observation dates:
|
Monthly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Redemption Dates” below, subject to postponement for non-trading days and certain market disruption events. We also refer to September 21, 2020 as the final observation date.
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Adjustment factor:
|
1.0, subject to adjustment in the event of certain corporate events affecting the underlying stock
|
Share performance factor:
|
Final share price
divided by
the initial share price
|
CUSIP / ISIN:
|
61768CQW0 / US61768CQW00
|
Listing:
|
The securities will not be listed on any securities exchange.
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|
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|
|
Observation Dates, Redemption
Determination Dates, Coupon Payment Dates and Redemption Dates
Observation Dates / Redemption Determination Dates
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Coupon Payment Dates / Redemption Dates
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October 20, 2017*
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October 25, 2017
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November 20, 2017*
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November 24, 2017
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December 20, 2017*
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December 26, 2017
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January 22, 2018*
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January 25, 2018
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February 20, 2018*
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February 23, 2018
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March 20, 2018
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March 23, 2018
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April 20, 2018
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April 25, 2018
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May 21, 2018
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May 24, 2018
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June 20, 2018
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June 25, 2018
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July 20, 2018
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July 25, 2018
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August 20, 2018
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August 23, 2018
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September 20, 2018
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September 25, 2018
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October 22, 2018
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October 25, 2018
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November 20, 2018
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November 26, 2018
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December 20, 2018
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December 26, 2018
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January 22, 2019
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January 25, 2019
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February 20, 2019
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February 25, 2019
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March 20, 2019
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March 25, 2019
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April 22, 2019
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April 25, 2019
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May 20, 2019
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May 23, 2019
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June 20, 2019
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June 25, 2019
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July 22, 2019
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July 25, 2019
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August 20, 2019
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August 23, 2019
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September 20, 2019
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September 25, 2019
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October 21, 2019
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October 24, 2019
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November 20, 2019
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November 25, 2019
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December 20, 2019
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December 26, 2019
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January 21, 2020
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January 24, 2020
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February 20, 2020
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February 25, 2020
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March 20, 2020
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March 25, 2020
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April 20, 2020
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April 23, 2020
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May 20, 2020
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May 26, 2020
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June 22, 2020
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June 25, 2020
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July 20, 2020
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July 23, 2020
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August 20, 2020
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August 25, 2020
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September 21, 2020 (final observation date)
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September 24, 2020 (maturity date)
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* The securities are not subject to automatic
early redemption until the 6
th
observation date, which is March 20, 2018.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Contingent Income Auto-Callable Securities due September 24,
2020, with 6-month Initial Non-Call Period Based on the Performance of the Common Stock of Tesla, Inc. (the “securities”)
do not provide for the regular payment of interest. Instead, the securities will pay a contingent monthly coupon
but
only if
the determination closing price of the underlying stock is
at or above
56.25% of the initial share price, which
we refer to as the downside threshold level, on the related observation date. If the determination closing price is
less than
the downside threshold level on any observation date, we will pay no coupon for the related monthly period. It
is possible that the determination closing price could remain below the downside threshold level for extended periods of time or
even throughout the entire 3-year term of the securities so that you will receive few or no contingent monthly coupons during the
entire term of the securities.
We refer to these coupons as contingent, because there is no guarantee that you
will receive a coupon payment on any coupon payment date. Even if the underlying stock were to be at or above the downside
threshold level on some monthly observation dates, it may fluctuate below the downside threshold level on others. In
addition, if the securities have not been automatically called prior to maturity and the final share price is
below
the
downside threshold level, investors will be fully exposed to the decline in the underlying stock on a 1-to-1 basis and will receive
a payment at maturity that is less than 56.25% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their entire initial investment and also the risk of
not receiving any contingent monthly coupons.
In addition, investors will not participate in any appreciation
of the underlying stock.
Maturity:
|
Approximately 3 years
|
Payment at maturity:
|
If the final share price is
greater than or equal to
the
downside threshold level, investors will receive the stated principal amount and the contingent monthly coupon with respect to
the final observation date.
If the final share price is
less than
the downside threshold
level, investors will receive a payment at maturity that is less than 56.25% of the stated principal amount of the securities and
could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their
entire initial investment.
|
Contingent monthly coupon:
|
A
contingent
coupon at an annual rate of 9.00% (corresponding
to approximately $7.50 per security per month) will be paid on the securities on each coupon payment date
but only if
the
determination closing price of the underlying stock is at or above the downside threshold level on the related observation date.
If, on any observation date, the determination closing price
of the underlying stock is less than the downside threshold level, we will pay no coupon for the applicable monthly period.
|
Automatic early redemption beginning in March 2018:
|
If the determination closing price of the underlying stock is greater than or equal to the initial share price on any monthly redemption determination date, beginning on March 20, 2018 (approximately six months after the original issue date), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent monthly coupon with respect to the related observation date.
|
The original issue price of each security is $1,000. This
price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value of each security
on the pricing date is $947.40.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date, we take into account
that the securities comprise both a debt component and a performance-based component linked to the underlying stock. The
estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the underlying stock, instruments based on the underlying stock, volatility and other factors including current and expected
interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at
which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities, including
the contingent monthly coupon rate and the downside threshold 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.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying stock, may vary from, and be lower
than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit
spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other
factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not
fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy
or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
stock, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We
expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in the
securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest. Instead,
the securities will pay a contingent monthly coupon
but only if
the determination closing price of the underlying stock
is
at or above
the downside threshold level on the related observation date. The securities have been designed
for investors who are willing to forgo market floating interest rates and accept the risk of receiving no coupon payments for the
entire 3-year term of the securities in exchange for an opportunity to earn interest at a potentially above-market rate if the
underlying stock closes at or above the downside threshold level on each monthly observation date until the securities are redeemed
early or reach maturity. The following scenarios are for illustrative purposes only to demonstrate how the coupon and
the payment at maturity (if the securities have not previously been redeemed) are calculated, and do not attempt to demonstrate
every situation that may occur. Accordingly, the securities may or may not be redeemed, the contingent coupon may be
payable in none of, or some but not all of, the monthly periods during the 3-year term of the securities and the payment at maturity
may be less than 56.25% of the stated principal amount of the securities and may be zero.
Scenario 1: The securities are redeemed prior to maturity
|
This scenario assumes that, prior to early redemption, the underlying
stock closes at or above the downside threshold level on some monthly observation dates but below the downside threshold level
on the others. Investors receive the contingent monthly coupon for the monthly periods for which the determination closing
price is at or above the downside threshold level on the related observation date, but not for the monthly periods for which the
determination closing price is below the downside threshold level on the related observation date.
When the underlying stock closes at or above the initial share
price on a monthly redemption determination date (beginning approximately six months after the original issue date), the securities
will be automatically redeemed for the stated principal amount
plus
the contingent monthly coupon with respect to the related
observation date.
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
This scenario assumes that the underlying stock closes at or above the downside threshold level on some monthly observation dates but below the downside threshold level on the others, and the underlying stock closes below the initial share price on every monthly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent monthly coupon for the monthly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the monthly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes at or above the downside threshold level. At maturity, investors will receive the stated principal amount and the contingent monthly coupon with respect to the final observation date.
|
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that the underlying stock closes at or above the downside threshold level on some monthly observation dates and below the downside threshold level on the others, and the underlying stock closes below the initial share price on every monthly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent monthly coupon for the monthly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the monthly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes below the downside threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor. Under these circumstances, the payment at maturity will be less than 56.25% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing price on each monthly observation date, (2) the determination closing
price on each monthly redemption determination date and (3) the final share price. Please see “Hypothetical Examples”
beginning on page 8 for an illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Monthly Coupons (Beginning
on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Beginning
Approximately Six Months After the Original Issue Date)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Diagram #3: Payment at Maturity
if No Automatic Early Redemption Occurs
For more information about the payout upon an early redemption
or at maturity in different hypothetical scenarios, see “Hypothetical Examples” starting on page 8.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent monthly coupon is paid with respect to an observation date and how to calculate the payment at maturity if
the securities have not been automatically redeemed early. The following examples are for illustrative purposes only. Whether
you receive a contingent monthly coupon will be determined by reference to the determination closing price on each monthly observation
date, whether the securities are redeemed prior to maturity will be determined by reference to the determination closing price
on each monthly redemption determination date, and the payment at maturity will be determined by reference to the determination
closing price on the final observation date. The actual initial share price and downside threshold level are set forth
on the cover of this document. All payments on the securities, if any, are subject to our credit risk. The
numbers in the hypothetical examples below may have been rounded for the ease of analysis. The below examples are based
on the following terms:
Hypothetical Initial Share Price:
|
$350
|
Hypothetical Downside Threshold Level:
|
$196.88, which is approximately 56.25% of the hypothetical initial share price
|
Contingent Monthly Coupon:
|
9.00% per annum (corresponding to approximately $7.50 per month
per security)*
A contingent monthly coupon is paid on each coupon payment date
but only if the determination closing price of the underlying stock is at or above the downside threshold level on the related
observation date.
|
Automatic Early Redemption:
|
If the determination closing price is greater than or equal to the initial share price on any monthly early redemption determination date (beginning approximately six months after the original issue date), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent monthly coupon with respect to the related observation date.
|
Payment at Maturity (if the securities have not been automatically redeemed early):
|
If the final share price is
greater than or equal to
the
downside threshold level: the stated principal amount and the contingent monthly coupon with respect to the final observation
date
If the final share price is
less than
the downside threshold
level: (i) the stated principal amount
multiplied by
(ii) the share performance factor
|
Stated Principal Amount:
|
$1,000
|
* The actual contingent monthly coupon will be an amount determined
by the calculation agent based on the number of days in the applicable payment period, calculated on a 30/360 basis. The
hypothetical contingent monthly coupon of $7.50 is used in these examples for each of analysis.
In Example 1, the determination closing price of the underlying
stock is greater than or equal to the initial share price on one of the monthly redemption determination dates (beginning on March
20, 2018). Because the determination closing price is greater than or equal to the initial share price on such a date,
the securities are automatically redeemed on the related early redemption date. In Examples 2, 3, and 4, the determination
closing price is less than the initial share price on all of the redemption determination dates, and, consequently, the securities
are not automatically redeemed prior to, and remain outstanding until, maturity.
Example 1
—The securities are automatically redeemed
following the monthly redemption determination date in March 2019, as the determination closing price is greater than or equal
to the initial share price on such redemption determination date. The underlying stock declines substantially and the
determination closing price is at or above the downside threshold level on only 7 of the 17 monthly observation dates prior to
(and excluding) the observation date immediately preceding the early redemption. Therefore, you would receive the contingent
monthly coupons with respect to those 7 observation dates, totaling $7.50 × 7 = $52.50, but not for the other
10 observation dates. The underlying stock in this example, however, recovers, and the determination closing price is
equal to the initial share price on the redemption determination date in March 2019. Upon early redemption, investors
receive the early redemption payment calculated as $1,000 + $7.50 = $1,007.50.
The total payment over the 18-month term of the securities is
$52.50 + $1,007.50 = $1,060.00.
Example 2
—The securities are not redeemed prior
to maturity, as the determination closing price is less than the initial share price on all monthly redemption determination dates. The
determination closing price is at or above the downside threshold level on all 35 monthly observation dates prior to (and excluding)
the final observation date, and the final share price is also at or above the downside threshold level. Therefore, you
would receive (i) the contingent monthly coupons with respect to the 35 observation dates prior to (and excluding) the final observation
date, totaling $7.50 × 35 = $262.50, and (ii) the payment at maturity calculated as $1,000 + $7.50 = $1,007.50.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
The total payment over the 3-year term of the securities is $262.50
+ $1,007.50 = $1,270.00
This example illustrates the scenario where you receive a contingent
monthly coupon on every coupon payment date throughout the term of the securities and receive your principal back at maturity,
resulting in an annual interest rate of 9.00% over the 3-year term of the securities. This example, therefore, represents
the maximum amount payable over the 3-year term of the securities. To the extent that coupons are not paid on every
coupon payment date, the effective rate of interest on the securities will be less than 9.00% per annum and could be zero.
Example 3
—The securities are not redeemed prior
to maturity, as the determination closing price is less than the initial share price on all monthly redemption determination dates. The
determination closing price is at or above the downside threshold level on 2 out of the 35 monthly observation dates prior to (and
excluding) the final observation date. The final share price is $250, which is above the downside threshold level. In
this scenario, you receive a payment at maturity equal to the stated principal amount and the contingent monthly coupon with respect
to the final observation date. Therefore, you would receive (i) the contingent monthly coupons with respect to those
2 observation dates prior to (and excluding) the final observation date, totaling $7.50 × 2 = $15.00, but not for the other
33 observation dates, and (ii) the payment at maturity calculated as $1,000 + $7.50 = $1,007.50.
The total payment over the 3-year term of the securities is $15.00
+ $1,007.50 = $1,022.50.
Example 4
—The securities are not redeemed prior
to maturity, as the determination closing price is less than the initial share price on all monthly redemption determination dates. The
determination closing price is below the downside threshold level on all of the monthly observation dates, including the final
observation date, on which the final share price is $70. Therefore, you would receive no contingent monthly coupons,
and the payment at maturity would be calculated as $1,000 × $70 / $350 = $200.
The total payment over the 3-year term of the securities is $0
+ $200 = $200.
If the securities are not automatically redeemed prior to
maturity and the final share price is less than the downside threshold level, you will lose a significant portion or all of your
investment in the securities.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Risk Factors
The following is a list of certain key risk factors for investors
in the securities. For further discussion of these and other risks, you should read the section entitled “Risk
Factors” in the accompanying product supplement and prospectus. We also urge you to consult with your investment,
legal, tax, accounting and other advisers in connection with your investment in the securities.
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§
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The securities do not guarantee the return of any
principal.
The terms of the securities differ from those of ordinary debt securities in that they do not guarantee
the repayment of any principal. If the securities have not been automatically redeemed prior to maturity and if the
final share price is less than the downside threshold level of 56.25% of the initial share price, you will be exposed to the decline
in the closing price of the underlying stock, as compared to the initial share price, on a 1-to-1 basis, and you will receive for
each security that you hold at maturity an amount equal to the stated principal amount
times
the share performance factor. In
this case, the payment at maturity will be less than 56.25% of the stated principal amount and could be zero.
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§
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The securities do not provide for the regular payment
of interest.
The terms of the securities differ from those of ordinary debt securities in that they do not provide
for the regular payment of interest. Instead, the securities will pay a contingent monthly coupon
but only if
the determination closing price of the underlying stock is
at or above
56.25% of the initial share price, which we refer
to as the downside threshold level, on the related observation date. If, on the other hand, the determination closing
price is lower than the downside threshold level on the relevant observation date for any interest period, we will pay no coupon
on the applicable coupon payment date. It is possible that the determination closing price will remain below the downside
threshold level for extended periods of time or even throughout the entire 3-year term of the securities so that you will receive
few or no contingent monthly coupons. If you do not earn sufficient contingent monthly coupons over the term of the
securities, the overall return on the securities may be less than the amount that would be paid on a conventional debt security
of ours of comparable maturity.
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§
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The contingent monthly coupon, if any, is based
on the determination closing price of the underlying stock on only the related monthly observation date at the end of the related
interest period.
Whether the contingent monthly coupon will be paid on any coupon payment date will be determined
at the end of the relevant interest period based on the determination closing price of the underlying stock on the relevant monthly
observation date. As a result, you will not know whether you will receive the contingent monthly coupon on any coupon
payment date until near the end of the relevant interest period. Moreover, because the contingent monthly coupon is
based solely on the value of the underlying stock on monthly observation dates, if the determination closing price of the underlying
stock on any observation date is below the downside threshold level, you will receive no coupon for the related interest period,
even if the level of the underlying stock was at or above the downside threshold level on other days during that interest period.
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§
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Investors will not participate in any appreciation
in the price of the underlying stock.
Investors will not participate in any appreciation in the price of the underlying
stock from the initial share price, and the return on the securities will be limited to the contingent monthly coupons, if any,
that are paid with respect to each observation date on which the determination closing price is greater than or equal to the downside
threshold level.
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§
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The market price will be influenced by many unpredictable
factors.
Several factors, many of which are beyond our control, will influence the value of the securities in the
secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary market. We
expect that generally the level of interest rates available in the market and the value of the underlying stock on any day, including
in relation to the downside threshold level, will affect the value of the securities more than any other factors. Other
factors that may influence the value of the securities include:
|
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying stock,
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|
o
|
whether the determination closing price of the underlying stock has been below the downside threshold level on any observation
date,
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o
|
dividend rates on the underlying stock,
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stock
and which may affect the final share price of the underlying stock,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
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|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and
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|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some or all of these factors will influence the price
that you will receive if you sell your securities prior to maturity. For example, you may have to sell your securities
at a substantial discount from the stated principal amount of $1,000 per security if the price of the underlying stock at the time
of sale is below the downside threshold level, or if market interest rates rise.
The price of the underlying stock may be, and has
recently been, volatile, and we can give you no assurance that the volatility will lessen. See “Tesla, Inc. Overview”
below. The price of the underlying stock may decrease and be below the downside threshold level on each observation
date so that you will receive no return on your investment. Additionally, the price of the underlying stock may decrease
and be below the downside threshold level on the final observation date so that you will lose more than 43.75% or all of your initial
investment in the securities. There can be no assurance that the determination closing price of the underlying stock
will be at or above the downside threshold level on any observation date so that you will receive a coupon payment on the securities
for the applicable interest period, or that it will be at or above the downside threshold level on the final observation date so
that you do not suffer a significant loss on your initial investment in the securities.
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§
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The securities are subject to our credit risk,
and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the securities.
You
are dependent on our ability to pay all amounts due on the securities at maturity or on any coupon payment date, and therefore
you are subject to our credit risk. The securities are not guaranteed by any other entity. If we default
on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment. As
a result, the market value of the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any
actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit
risk is likely to adversely affect the market value of the securities.
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§
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As a finance subsidiary, MSFL has no independent
operations and will have no independent assets.
As a finance subsidiary, MSFL has no independent operations beyond
the issuance and administration of its securities and will have no independent assets available for distributions to holders of
MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution or similar proceeding. Accordingly,
any recoveries by such holders will be limited to those available under the related guarantee by Morgan Stanley and that guarantee
will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan Stanley. Holders will have
recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities issued
by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be treated
pari
passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued
securities.
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§
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Reinvestment risk.
The term of your
investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the
securities are redeemed prior to maturity, you will receive no more contingent monthly coupons and may be forced to invest in a
lower interest rate environment and may not be able to reinvest at comparable terms or returns. However, under no circumstances
will the securities be redeemed in the first six months of the term of the securities.
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§
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Investing in the securities is not equivalent to
investing in the common stock of Tesla, Inc.
Investors in the securities will not have voting rights or rights to
receive dividends or other distributions or any other rights with respect to the underlying stock, and investors will not participate
in any appreciation of the underlying stock over the term of the securities.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
|
§
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No affiliation with Tesla, Inc.
Tesla,
Inc. is not an affiliate of ours, is not involved with this offering in any way, and has no obligation to consider your interests
in taking any corporate actions that might affect the value of the securities. We have not made any due diligence inquiry
with respect to Tesla, Inc. in connection with this offering.
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§
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We may engage in business with or involving Tesla,
Inc. without regard to your interests.
We or our affiliates may presently or from time to time engage in business
with Tesla, Inc. without regard to your interests and thus may acquire non-public information about Tesla, Inc. Neither
we nor any of our affiliates undertakes to disclose any such information to you. In addition, we or our affiliates from
time to time have published and in the future may publish research reports with respect to Tesla, Inc., which may or may not recommend
that investors buy or hold the underlying stock.
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§
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The antidilution adjustments the calculation agent
is required to make do not cover every corporate event that could affect the underlying stock.
MS & Co., as
calculation agent, will adjust the adjustment factor for certain corporate events affecting the underlying stock, such as stock
splits and stock dividends, and certain other corporate actions involving the issuer of the underlying stock, such as mergers. However,
the calculation agent will not make an adjustment for every corporate event that can affect the underlying stock. For
example, the calculation agent is not required to make any adjustments if the issuer of the underlying stock or anyone else makes
a partial tender or partial exchange offer for the underlying stock, nor will adjustments be made following the final observation
date. If an event occurs that does not require the calculation agent to adjust the adjustment factor, the market price
of the securities may be materially and adversely affected.
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§
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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
3-year term of the securities.
The securities will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the securities. MS & Co. may, but is not obligated to, make a market
in the securities, and, if it once chooses to make a market, may cease doing so at any time. When it does make a market,
it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value
of the securities, taking into account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed
sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able
to resell the securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell
the securities easily. Since other broker-dealers may not participate significantly in the secondary market for the
securities, the price at which you may be able to trade your securities is likely to depend on the price, if any, at which MS &
Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it is likely
that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
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§
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The rate we are willing
to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market
credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling,
structuring and hedging the securities in the original issue price reduce the economic terms of the securities, cause the estimated
value of the securities to be less than the original issue price and will adversely affect secondary market prices.
Assuming
no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may
be willing to purchase the securities in secondary market transactions will likely be significantly lower than the original issue
price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included
in the original issue price and borne by you and because the secondary market prices will reflect our secondary market credit spreads
and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
|
The inclusion
of the costs of issuing, selling, structuring and hedging the securities in the original issue price and the lower rate we are
willing to pay as issuer make the economic terms of the securities less favorable to you than they otherwise would be.
However, because
the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a
period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary
market, absent changes in market conditions, including those related to the
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
underlying stock,
and to our secondary market credit spreads, it would do so based on values higher than the estimated value, and we expect that
those higher values will also be reflected in your brokerage account statements.
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§
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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 notes 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.
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§
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Hedging and trading activity by our affiliates
could potentially affect the value of the securities.
One or more of our affiliates and/or third-party dealers have
carried out, and will continue to carry out, hedging activities related to the securities (and to other instruments linked to the
underlying stock), including trading in the underlying stock. As a result, these entities may be unwinding or adjusting
hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the final observation date approaches. Some of our affiliates also trade the underlying stock and other
financial instruments related to the underlying stock on a regular basis as part of their general broker-dealer and other businesses. Any
of these hedging or trading activities on or prior to the pricing date could have increased the initial share price, and, therefore,
could have increased (i) the price at or above which the underlying stock must close on the redemption determination dates so that
the securities are redeemed prior to maturity for the early redemption payment and (ii) the downside threshold level, which is
the price at or above which the underlying stock must close on each observation date in order for you to earn a contingent monthly
coupon, and, if the securities are not called prior to maturity, in order for you to avoid being exposed to the negative price
performance of the underlying stock at maturity. Additionally, such hedging or trading activities during the term of
the securities could affect the price of the underlying stock on the redemption determination dates and the observation dates,
and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent monthly coupon on the securities
and the amount of cash you receive at maturity, if any.
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§
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The calculation agent, which is a subsidiary of
Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities.
As calculation
agent, MS & Co. has determined the initial share price and the downside threshold level, and will determine the final share
price, whether the contingent monthly coupon will be paid on each coupon payment date, whether the securities will be redeemed
on any early redemption date, whether a market disruption event has occurred, whether to make any adjustments to the adjustment
factor and the payment that you will receive at maturity, if any. Moreover, certain determinations made by MS &
Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect
to the occurrence or nonoccurrence of market disruption events and certain adjustments to the adjustment factor. These
potentially subjective determinations may affect the payout to you upon an automatic early redemption or at maturity, if any. For
further information regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable
Securities Linked to Underlying Shares” and “—Calculation Agent and Calculations” and related definitions
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities
on the pricing date.
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The U.S. federal income tax consequences of an
investment in the securities are uncertain.
There is no direct legal authority as to the proper treatment of the securities
for U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment of the securities are uncertain.
|
Please read the discussion under “Additional
Provisions—Tax considerations” in this document concerning the U.S. federal income tax consequences of an investment
in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction
with the capital loss treatment of any loss recognized
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
upon the sale, exchange or settlement of the securities,
could result in adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to
limitations. We do not plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment
of the securities, and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful
in asserting an alternative treatment for the securities, the timing and character of income or loss on the securities might differ
significantly from the tax treatment described herein. For example, under one possible treatment, the IRS could seek
to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required to accrue into income
original issue discount on the securities every year at a “comparable yield” determined at the time of issuance (as
adjusted based on the difference, if any, between the actual and the projected amount of any contingent payments on the securities)
and recognize all income and gain in respect of the securities as ordinary income. The risk that financial instruments
providing for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized as debt
is greater than the risk of recharacterization for comparable financial instruments that do not have such features.
Non-U.S. Holders should note that we currently
intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified by an applicable
income tax treaty under an “other income” or similar provision, and will not be required to pay any additional amounts
with respect to amounts withheld.
In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar
instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations 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. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character
and timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders (as defined below) should consult their tax advisers regarding the U.S. federal
income tax consequences of an investment in the securities, including possible alternative treatments, the issues presented by
this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Tesla, Inc. Overview
Tesla, Inc. designs, manufactures and sells electric vehicles
and energy storage systems, as well as installs, operates and maintains solar and energy storage products. The underlying stock
is registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Information provided
to or filed with the Securities and Exchange Commission by Tesla, Inc. pursuant to the Exchange Act can be located by reference
to the Securities and Exchange Commission file number 001-34756 through the Securities and Exchange Commission’s website
at .www.sec.gov. In addition, information regarding Tesla, Inc. may be obtained from other sources including, but not
limited to, press releases, newspaper articles and other publicly disseminated documents.
Neither the issuer nor
the agent makes any representation that such publicly available documents or any other publicly available information regarding
the issuer of the underlying stock is accurate or complete.
Information as of market close on September 20, 2017:
Bloomberg Ticker Symbol:
|
TSLA
|
Exchange:
|
NASDAQ
|
Current Stock Price:
|
$373.91
|
52 Weeks Ago:
|
$204.64
|
52 Week High (on 9/18/2017):
|
$385.00
|
52 Week Low (on 11/14/2016):
|
$181.45
|
Current Dividend Yield:
|
N/A
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the underlying stock for each quarter from January 1, 2014 through September 20, 2017.
The closing price of the underlying stock on September 20, 2017 was $373.91. The associated graph shows the closing
prices of the underlying stock for each day from January 1, 2012 through September 20, 2017. We obtained the information
in the table and graph below from Bloomberg Financial Markets, without independent verification. The historical performance
of the underlying stock should not be taken as an indication of its future performance, and no assurance can be given as to the
price of the underlying stock at any time, including on the redemption determination dates or the observation dates.
Common Stock of Tesla, Inc. (CUSIP 88160R101)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2014
|
|
|
|
First Quarter
|
254.84
|
139.34
|
-
|
Second Quarter
|
240.06
|
178.59
|
-
|
Third Quarter
|
286.04
|
215.40
|
-
|
Fourth Quarter
|
260.62
|
197.81
|
-
|
2015
|
|
|
|
First Quarter
|
220.99
|
185.00
|
-
|
Second Quarter
|
268.79
|
187.59
|
-
|
Third Quarter
|
282.26
|
218.87
|
-
|
Fourth Quarter
|
247.57
|
206.93
|
-
|
2016
|
|
|
|
First Quarter
|
238.32
|
143.67
|
-
|
Second Quarter
|
265.42
|
193.15
|
-
|
Third Quarter
|
234.79
|
194.47
|
-
|
Fourth Quarter
|
219.74
|
181.45
|
-
|
2017
|
|
|
|
First Quarter
|
280.98
|
216.99
|
-
|
Second Quarter
|
383.45
|
295.00
|
-
|
Third Quarter (through September 20, 2017)
|
385.00
|
308.83
|
-
|
|
|
|
|
We make no representation as to the amount of dividends, if any,
that Tesla, Inc. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable Securities,
you will not be entitled to receive dividends, if any, that may be payable on the common stock of Tesla, Inc.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Common Stock of Tesla, Inc. – Daily Closing Prices
January 1, 2012 to September 20, 2017
|
|
*The red solid line indicates the downside threshold level of
$210.324, which is approximately 56.25% of the initial share
price.
This document relates only to the securities referenced hereby
and does not relate to the underlying stock or other securities of Tesla, Inc. We have derived all disclosures contained
in this document regarding Tesla, Inc. stock from the publicly available documents described above. In connection with
the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any due
diligence inquiry with respect to Tesla, Inc. Neither we nor the agent makes any representation that such publicly available
documents or any other publicly available information regarding Tesla, Inc. is accurate or complete. Furthermore, we
cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or
completeness of the publicly available documents described above) that would affect the trading price of the underlying stock (and
therefore the price of the underlying stock at the time we priced the securities) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose material future events concerning Tesla, Inc. could affect
the value received with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates makes any representation
to you as to the performance of the underlying stock.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 24, 2020, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities