August 2024
Preliminary Pricing Supplement No. 3,438
Registration Statement Nos. 333-275587; 333-275587-01
Dated August 8, 2024
Filed pursuant to Rule 424(b)(2)
Morgan
Stanley Finance LLC
Structured
Investments
Opportunities in
U.S. Equities
Market Linked
Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at
Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR®
Fund and the S&P 500® Index due August 21, 2028
Fully and
Unconditionally Guaranteed by Morgan Stanley
§ Linked
to the lowest performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P
500® Index (each referred to as an “underlying”)
§ The
securities offered are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed
by Morgan Stanley. The securities will pay no interest, provide for a maturity payment amount that may be significantly less than the
face amount, and may be zero, and have the terms described in the accompanying product supplement for principal at risk securities, index
supplement and prospectus, as supplemented or modified by this document. At maturity:
§ If
the level of the lowest performing underlying has increased, investors will receive the face amount plus a positive return equal
to 150% of the percentage increase in the level of the lowest performing underlying from its starting level, subject to a maximum return
at maturity of at least 43% (to be determined on the pricing date) of the face amount. As a result of the maximum return, the maximum
maturity payment amount will be at least $1,430 per security
§ If
the level of the lowest performing underlying has decreased, but the lowest performing underlying has not decreased by more than the buffer
amount of 30%, investors will receive the face amount plus an unleveraged positive return equal to the absolute value of the percentage
decline in the level of the lowest performing underlying from the starting level to the ending level, which will effectively be limited
to a positive return of 30%
§ If
the level of the lowest performing underlying has decreased by more than the buffer amount, investors will have 1-to-1 downside exposure
to the decrease in the level of the lowest performing underlying from its starting level in excess of the buffer amount
§ Investors
may lose up to 70% of the face amount of the securities
§ The
securities are for investors who seek an equity-based return and who are willing to risk their investment, risk exposure to the lowest
performing underlying and forgo current income and upside above the maximum return in exchange for the participation rate, buffer and
absolute return features that in each case apply to a limited range of performance of the lowest performing underlying
§ 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 securities
included in any of the underlyings
|
The current estimated value of the securities
is approximately $932.60 per security, or within $32.60 of that estimate. The estimated value of the securities is determined using our
own pricing and valuation models, market inputs and assumptions relating to the underlyings, instruments based on the underlyings, 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. See “Estimated Value
of the Securities” on page 4.
The securities have complex features and investing
in the securities involves 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 our credit risk.
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 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 for principal at risk securities, index supplement and prospectus, each of which can be accessed via the hyperlinks
below. When you read the accompanying product supplement and index supplement, please note that all references in such supplements to
the prospectus dated November 16, 2023, or to any sections therein, should refer instead to the accompanying prospectus dated April 12,
2024 or to the corresponding sections of such prospectus, as applicable. Please also see “Additional Information About the Securities”
at the end of this document.
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Commissions
and offering price: |
Price
to public |
Agent’s
commissions(1)(2) |
Proceeds
to us(3) |
Per
security |
$1,000 |
$33.25 |
$966.75 |
Total |
$ |
$ |
$ |
| (1) | Wells Fargo Securities, LLC, an agent for this offering,
will receive a commission of up to $33.25 for each security it sells. Dealers, including Wells Fargo Advisors (“WFA”), may
receive a selling concession of up to $27.50 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) | In
respect of certain securities sold in this offering, we may pay a fee of up to $4.00 per security to selected securities dealers in consideration
for marketing and other services in connection with the distribution of the securities to other securities dealers. |
| (3) | See “Use of Proceeds and Hedging” in the accompanying
product supplement. |
Morgan Stanley |
Wells
Fargo Securities |
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Issuer: |
Morgan Stanley Finance LLC |
Guarantor: |
Morgan Stanley |
Maturity
date: |
August 21, 2028†, subject to postponement if the calculation day is postponed* |
Underlyings: |
Russell 2000® Index (the “RTY Index”), the
Technology Select Sector SPDR® Fund (the “XLK Shares”) and S&P 500® Index (the “SPX
Index”)
The Russell 2000® Index and the S&P 500®
Index are sometimes collectively referred to herein as the “Indices” and individually as an “Index,” and the Technology
Select Sector SPDR® Fund is sometimes individually referred to herein as a “Fund.”
|
Fund
underlying index: |
S&P® Technology Select Sector Index |
Fund
underlying index sponsor: |
S&P® Dow Jones Indices LLC, or any successor thereof |
Maturity
payment amount: |
At maturity, the maturity payment amount per $1,000 face amount of
securities will be determined as follows:
· If
the ending level of the lowest performing underlying is greater than its starting level:
$1,000 plus the lesser of:
(ii) the maximum return
· If
the ending level of the lowest performing underlying is less than or equal to its starting level, but greater than or equal
to its threshold level:
$1,000 plus:
In this scenario, you will receive a 1% positive return on the securities
for each 1% negative return on the lowest performing underlying. In no event will this amount exceed the face amount plus $300.
· If
the ending level of the lowest performing underlying is less than its threshold level:
$1,000 + [$1,000 × (underlying return
of lowest performing underlying + buffer amount)]
If the ending level of the lowest performing underlying is less
than its threshold level, you will receive less, and up to 70% less, than the face amount of your securities at maturity.
|
Participation
rate: |
150% |
Lowest
performing underlying: |
The underlying with the lowest underlying return |
Underlying
return: |
With respect to each underlying, the percentage change from its starting
level to its ending level, measured as follows:
ending level – starting level
starting level |
Absolute
underlying return: |
With respect to each underlying, the absolute value of the underlying return. For example a –5% underlying return will result in a +5% absolute underlying return. |
Starting
level: |
With respect to the RTY Index: , its closing
level on the pricing date.
With respect to the XLK Shares: $ , its closing
price on the pricing date.
With respect to the SPX Index: , its closing
level on the pricing date.
|
Ending
level: |
With respect to each of the RTY Index and the SPX Index, the closing
level on the calculation day.
With respect to the XLK Shares, the closing price of one XLK Share
on the calculation day multiplied by the adjustment factor on such day.
|
Calculation
day: |
August 16, 2028**† |
Threshold
level: |
With respect to the RTY Index: ,
which is equal to 70% of its starting level.
With respect to the XLK Shares: $ , which is
equal to 70% of its starting level.
With respect to the SPX Index: ,
which is equal to 70% of its starting level.
|
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Buffer
amount: |
30% |
Maximum
return: |
The “maximum return” will be determined on the pricing date and will be at least 43% of the face amount per security (at least $430 per security). As a result of the maximum return, the maximum maturity payment amount will be at least $1,430 per security. |
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: |
August 16, 2024† |
Original
issue date: |
August 21, 2024† (3 business days after the pricing date) |
Adjustment
factor: |
The “adjustment factor” means, 1.0, subject to adjustment in the event of certain events affecting the Fund. See “General Terms of the Securities—Anti-dilution Adjustments Relating to a Fund; Alternate Calculation” in the accompanying product supplement for principal at risk securities. |
CUSIP
/ ISIN: |
61776REZ3 / US61776REZ38 |
Listing: |
The securities will not be listed on any securities exchange. |
Agents: |
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, and Wells Fargo Securities, LLC (“WFS”). See “Additional Information About the Securities—Supplemental information regarding plan of distribution; conflicts of interest.” |
† To the extent we make any change to the pricing date or original
issue date, the calculation day and maturity date may also be changed in our discretion to ensure that the term of the securities remains
the same.
* Subject to postponement pursuant to “General Terms of the Securities—Payment
Dates” in the accompanying product supplement for principal at risk securities.
** Subject to postponement pursuant to “General Terms of the
Securities—Consequences of a Market Disruption Event; Postponement of a Calculation Day” in the accompanying product supplement
for principal at risk securities.
|
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Estimated Value of the Securities |
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 will be less than $1,000 per security. We estimate that the value of each security on the pricing
date will be approximately $932.60, or within $32.60 of that estimate. Our estimate of the value of the securities as determined on the
pricing date will be set forth in the final pricing supplement.
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 underlyings. The estimated value of
the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlyings, instruments
based on the underlyings, 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
maximum return, the participation rate and the threshold levels, 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 underlyings, 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 4 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 underlyings, 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
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
The Principal at Risk Securities Linked to the Lowest Performing of
the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index
due August 21, 2028 (the “securities”) may be appropriate for investors who:
| § | Seek an alternative to direct exposure to the underlyings that enhances returns
for a certain range of positive performance of the lowest performing underlying, subject to the maximum return |
| § | Seek to enhance returns and potentially outperform the lowest performing
underlying by taking advantage of the participation rate, subject to the maximum return |
| § | Understand that any positive return based on the depreciation of the lowest
performing underlying will be limited to 30%, and that any depreciation of the lowest performing underlying from the starting level to
the ending level of more than the buffer amount will result in a loss, rather than a positive return, on the securities |
| § | Understand that the ending level of the lowest performing underlying may
decrease by more than the buffer amount from its starting level, resulting in a loss of some or a significant portion of the initial investment |
| § | Desire to obtain a buffer against a specified level of negative performance
in the lowest performing underlying |
| § | Understand that the return on the securities will depend solely on the performance
of the lowest performing underlying and that they will not benefit in any way from the performance of any better performing underlying |
| § | Understand that the securities are riskier than alternative investments linked
to only one of the underlyings or linked to a basket composed of each underlying |
| § | Understand and are willing to accept the full downside risks of each underlying |
| § | Are willing to forgo interest payments on the securities and dividends on
securities included in the underlyings |
| § | Are willing to hold the securities to maturity |
The securities are not designed for, and may not be an appropriate
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 lowest performing
underlying may decrease by more than the buffer amount from its starting level, resulting in a loss of some or a significant portion of
the initial investment |
| § | Seek uncapped exposure to the upside performance of the lowest performing
underlying |
| § | 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 each of the underlyings |
| § | Seek exposure to the lowest performing underlying but are unwilling to accept
the risk/return trade-offs inherent in the maturity payment amount for the securities |
| § | Seek exposure to a basket composed of each underlying or a similar investment
in which the overall return is based on a blend of the performances of the underlyings, rather than solely on the lowest performing underlying |
| § | Are unwilling to accept our credit risk |
| § | Prefer the lower risk of fixed income investments with comparable maturities
issued by companies with comparable credit ratings |
The considerations identified above are not
exhaustive. Whether or not the securities are an appropriate investment for you will depend on your individual circumstances, and you
should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered
the appropriateness of an investment in the securities in light of your particular circumstances. You should also review carefully the
“Risk Factors” herein and in the accompanying product supplement for risks related to an investment in the securities. For
more information about the underlyings, please see the sections titled “Russell 2000® Index Overview,” “Technology
Select Sector SPDR® Fund Overview” and “S&P 500® Index Overview” below.
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Determining Maturity Payment Amount |
At maturity, the maturity payment amount per $1,000 face amount of
securities will be determined as follows:
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Payoff Diagram
The payoff diagram below illustrates the maturity payment amount on
the securities based on a range of hypothetical underlying returns of the lowest performing underlying and the following terms:
Face amount: |
$1,000 per security |
Participation rate: |
150% |
Threshold level: |
70% of its starting level |
Buffer amount: |
30% |
Hypothetical maximum return: |
43% of the face amount ($430 per security). The actual maximum return will be determined on the pricing date. |
Securities
Payoff Diagram |
|
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Scenario Analysis and Examples of Maturity Payment 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 levels of the underlyings relative to their respective starting levels. We cannot predict
the ending levels of the underlyings 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 underlyings. 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 principal at risk securities, the amount
you will receive per $1,000 face amount of securities at maturity will be the maturity payment amount,
defined and calculated as provided in this document. The following scenario analysis and examples illustrate the maturity payment amount
on a hypothetical offering of the securities, based on the following terms*:
Investment term: |
4 years |
Hypothetical starting level: |
With respect to the RTY Index: 100 |
|
With respect to the XLK Shares: $100 |
|
With respect to the SPX Index: 100 |
Hypothetical threshold level: |
With respect to the RTY Index, 70, which is 70% of its respective hypothetical starting level |
|
With respect to the XLK Shares, $70, which is 70% of its respective hypothetical starting level |
|
With respect to the SPX Index, 70, which is 70% of its respective hypothetical starting level |
Buffer amount: |
30% |
Participation rate: |
150% |
Hypothetical maximum return: |
43% of the face amount ($430 per security). The actual maximum return will be determined on the pricing date. |
* The hypothetical starting
level of 100 for the underlyings has been chosen for illustrative purposes only and does not represent the actual starting level of any
underlying. The actual starting levels, threshold levels and maximum return will be determined on the pricing date and will be set forth
under “Terms” above. For historical data regarding the actual closing levels of the underlyings, see the historical information
set forth herein.
Example 1 — Each
underlying appreciates over the term of the securities, and investors receive a positive return, calculated based on the underlying return
of the lowest performing underlying.
Ending level |
|
RTY Index: 110 |
|
|
XLK Shares: $140 |
|
|
SPX Index: 150 |
Underlying return |
|
RTY Index: (110 – 100) / 100 = 10%
XLK Shares: ($140 – $100) / $100 = 40%
SPX Index: (150 – 100) / 100 = 50%
|
Maturity payment amount |
= |
$1,000 plus the lesser of:
(i) [$1,000 × underlying return of lowest performing underlying
×participation rate], and
(ii) the maximum return of $430
|
|
= |
$1,000 plus the lesser of:
(i) [$1,000 × 10% × 150%]
(ii) $430
|
|
= |
$1,150 |
In example 1, the ending level of each of the RTY Index, the XLK Shares
and the SPX Index is greater than its starting level. Therefore, investors receive at maturity the face amount plus the lesser
of a positive return equal to 150% of the appreciation of the lowest performing underlying, which is the RTY Index in this example, and
the maximum return of $430. Investors receive $1,150 per security at maturity.
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Example 2 — Each underlying appreciates over the term
of the securities, and investors receive a positive return, calculated based on the underlying return of the lowest performing underlying.
Ending level |
|
RTY Index: 160 |
|
|
XLK Shares: $180 |
|
|
SPX Index: 150 |
Underlying return |
|
RTY Index: (160 – 100) / 100 = 60%
XLK Shares: ($180 – $100) / $100 = 80%
SPX Index: (150 – 100) / 100 = 50%
|
Maturity payment amount |
= |
$1,000 plus the lesser of:
(i) [$1,000 × underlying return of lowest performing underlying
×participation rate], and
(ii) the maximum return of $430
|
|
= |
$1,000 plus the lesser of:
(i) [$1,000 × 50% × 150%], and
(ii) $430
|
|
= |
$1,430 |
In example 2, the ending level of each of the RTY Index, the XLK Shares
and the SPX Index is greater than its starting level. Therefore, investors receive at maturity the face amount plus the lesser
of a positive return equal to 150% of the appreciation of the lowest performing underlying, which is the SPX Index in this example, and
the maximum return of $430. Investors receive $1,430 per security at maturity.
Example 3 — One
underlying appreciates, while the other two underlyings decline over the term of the securities but no underlying declines below the hypothetical
starting level by more than the buffer amount, and investors receive a positive return, calculated based on the absolute underlying return
of the lowest performing underlying.
Ending level |
|
RTY Index: 130 |
|
|
XLK Shares: $90 |
|
|
SPX Index: 80 |
Underlying return |
|
RTY Index: (130 – 100) / 100 = 30%
XLK Shares: ($90 – $100) / $100 = -10%
SPX Index: (80 – 100) / 100 = -20%
|
Maturity payment amount |
= |
$1,000 plus:
[$1,000 × absolute underlying return of lowest performing underlying]
|
|
= |
$1,000 + [$1,000 × 20%] |
|
= |
$1,200 |
In example 3, the ending level of the RTY Index is greater than its
starting level, while the ending levels of the XLK Shares and the SPX Index are less than their respective starting levels, but are greater
than or equal to their respective threshold levels. Therefore, investors receive at maturity the face amount plus a positive return
equal to the absolute underlying return of the lowest performing underlying, which is the SPX Index in this example. Investors receive
$1,200 per security at maturity.
Example 4 — Two
underlyings appreciate while one underlying declines over the term of the securities, and the ending level of the lowest performing underlying
is less than the hypothetical starting level by more than the buffer amount. Investors are therefore exposed to the decline in the level
of the lowest performing underlying in excess of the buffer amount.
Ending level |
|
RTY Index: 130 |
|
|
XLK Shares: $105 |
|
|
SPX Index: 30 |
Underlying return |
|
RTY Index: (130 – 100) / 100 = 30%
XLK Shares: ($105 – $100) / $100 = 5%
SPX Index: (30 – 100) / 100 = -70%
|
Maturity payment amount |
= |
$1,000 + [$1,000 × underlying return of lowest performing underlying + buffer amount] |
|
= |
$1,000 + [$1,000 ×-70% + 30%] |
|
= |
$600 |
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
In example 4, the ending levels of the RTY Index and the XLK Shares
are greater than their respective starting levels, while the ending level of the SPX Index has declined below its threshold level. Because
the ending level of the SPX Index has declined by more than the buffer amount, investors are exposed to the negative performance of the
SPX Index , which is the lowest performing underlying in this example, in excess of the buffer amount. Investors receive a maturity payment
amount of $600.
Example 5 — Each
underlying declines below its respective threshold level, and investors are therefore exposed to the decline in the level of the lowest
performing underlying in excess of the buffer amount.
Ending level |
|
RTY Index: 30 |
|
|
XLK Shares: $45 |
|
|
SPX Index: 40 |
Underlying return |
|
RTY Index: (30 – 100) / 100 = -70%
XLK Shares: ($45 – $100) / $100 = -55%
SPX Index: (40 – 100) / 100 = -60%
|
Maturity payment amount |
= |
$1,000 + [$1,000 × underlying return of lowest performing underlying + buffer amount] |
|
= |
$1,000 + [$1,000 ×-70% + 30%] |
|
= |
$600 |
In example 5, the ending level of each of the RTY Index, the XLK Shares
and the SPX Index is less than its respective threshold level. Therefore, investors are exposed to the negative performance of the RTY
Index, which is the lowest performing underlying in this example, in excess of the buffer amount. Investors receive a maturity payment
amount of $600.
Because the maturity payment amount of the securities is based on
the lowest performing underlying, a decline in any underlying below its respective threshold level will result in a loss of up to 70%
of the face amount of your securities at maturity, even if the other underlyings have appreciated or have not declined as much.
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Scenario Analysis – Hypothetical Maturity
Payment Amount for each $1,000 Face Amount of Securities.
Performance
of the Lowest Performing Underlying* |
Performance of the Securities(1)
|
Ending Level
|
Underlying Return
|
Maturity Payment
Amount
|
Return on Securities(2)
|
200 |
100.00% |
$1,430.00 |
43.00% |
190 |
90.00% |
$1,430.00 |
43.00% |
180 |
80.00% |
$1,430.00 |
43.00% |
170 |
70.00% |
$1,430.00 |
43.00% |
160 |
60.00% |
$1,430.00 |
43.00% |
150 |
50.00% |
$1,430.00 |
43.00% |
140 |
40.00% |
$1,430.00 |
43.00% |
130 |
30.00% |
$1,430.00 |
43.00% |
128.667 |
28.667% |
$1,430.00 |
43.00% |
120 |
20.00% |
$1,300.00 |
30.00% |
110 |
10.00% |
$1,150.00 |
15.00% |
105 |
5.00% |
$1,075.00 |
7.50% |
100(3) |
0.00% |
$1,000.00 |
0.00% |
95 |
-5.00% |
$1,000.00 |
0.00% |
90 |
-10.00% |
$1,000.00 |
0.00% |
80 |
-20.00% |
$1,000.00 |
0.00% |
70 |
-30.00% |
$1,000.00 |
0.00% |
69 |
-31.00% |
$990.00 |
-1.00% |
60 |
-40.00% |
$900.00 |
-10.00% |
50 |
-50.00% |
$800.00 |
-20.00% |
40 |
-60.00% |
$700.00 |
-30.00% |
30 |
-70.00% |
$600.00 |
-40.00% |
20 |
-80.00% |
$500.00 |
-50.00% |
10 |
-90.00% |
$400.00 |
-60.00% |
0 |
-100.00% |
$300.00 |
-70.00% |
|
|
|
|
| * | The underlyings exclude cash dividend payments on stocks
included in the Indices or the fund underlying index. |
| (1) | Assumes a maximum return of 43% of the face amount ($430
per security). The actual maximum return will be determined on the pricing date. |
| (2) | The “Return on Securities” is the number, expressed
as a percentage, which results from comparing the maturity payment amount per $1,000 face amount of securities to the purchase price
of $1,000 per security. |
| (3) | The hypothetical starting level of each underlying.
|
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
This section describes the material risks relating to the securities.
For further discussion of these and other risks, you should read the section entitled “Risk Factors” in the accompanying product
supplement for principal at risk securities, 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.
Risks Relating to an Investment in the Securities
| § | The securities do not pay interest, and you will receive less, and up
to 70% less, than the face amount of your securities at maturity if the ending level of the lowest performing underlying is less than
its respective 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 of the lowest performing underlying
is less than its threshold level, which is 70% of the starting level, the contingent absolute return feature will no longer be available
and you will receive less, and up to 70% less, than the face amount of your securities at maturity. Investors may lose some or a significant
portion of their investment in the securities. |
| § | The appreciation potential of the securities is limited by the maximum
return. The appreciation potential of the securities is limited by the maximum return. Although the participation rate provides 150%
exposure to any increase in the ending level over the starting level, because any positive return on the securities will be limited to
the maximum return of at least 43% of the face amount for the securities, any increase in the ending level over the starting level by
more than at least approximately 28.667% of the starting level, depending on the actual maximum return, will not further increase the
return on the securities. |
| § | Any positive return based on the depreciation of the lowest performing
underlying is effectively capped. Any positive return based on the depreciation of the lowest performing underlying will be capped
at 30% because the contingent absolute return feature is operative only if the lowest performing underlying depreciates by no more than
the buffer amount. Any depreciation of the lowest performing underlying by more than the buffer amount will result in a loss of some or
a significant portion of the face amount and not a positive return. |
| § | 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 level, volatility
(frequency and magnitude of changes in level) and dividend yield of the underlyings, interest and yield rates in the market, time remaining
to maturity, geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlyings or
equities markets generally and which may affect the ending levels of the underlyings, the occurrence of certain events affecting the Fund
that may or may not require an adjustment to the adjustment factor and any actual or anticipated changes in our credit ratings or credit
spreads. Generally, the longer the time remaining to maturity, the more the market price of the securities will be affected by the other
factors described above. The levels of the underlyings may be, and have recently been, volatile, and we can give you no assurance that
the volatility will lessen. See “Russell 2000® Index Overview,” “Technology Select Sector SPDR®
Fund Overview” and “S&P 500® Index 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 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, and therefore you are subject to our credit risk. If we default on our obligations
under the securities, your investment would be at risk and you could lose some or all of your investment. As a result, the market value
of the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any actual or anticipated
decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is likely to adversely
affect the market value of the securities. |
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
| § | 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. |
| § | The amount payable on the securities is not linked to the values of the
underlyings at any time other than the calculation day. The ending level of each underlying will be based on the closing level of
such underlying on the calculation day, subject to postponement for non-trading days and certain market disruption events. Even if each
underlying appreciates prior to the calculation day but the level of any underlying decreases by the calculation day, the maturity payment
amount may be less, and may be significantly less, than it would have been had the maturity payment amount been linked to the levels of
the underlyings prior to such decrease. Although the actual levels of the underlyings on the maturity date or at other times during the
term of the securities may be higher than their respective ending levels, the maturity payment amount will be based solely on the closing
levels on the calculation day. |
| § | Investing in the securities is not equivalent to investing in the underlyings
or the stocks composing the Indices or the fund underlying index. Investing in the securities is not equivalent to investing in the
underlyings or the stocks that constitute the Indices or the fund underlying index. 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 stocks that constitute the Indices or the
fund 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 4 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 underlyings, 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 |
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
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. 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 and an
affiliate of MSFL, will make determinations with respect to the securities. As calculation agent, MS & Co. will determine the
starting levels, the threshold levels and the ending levels and will 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 an ending level in the event of a market disruption event, discontinuance of any of the underlyings or certain adjustments to the adjustment
factor. These potentially subjective determinations may adversely affect the payout to you at maturity. For further information regarding
these types of determinations, see “General Terms of the Securities—Market Disruption Events,” “—Adjustments
to an Index,” “—Discontinuance of an Index,” “—Anti-dilution Adjustments Relating to a Fund; Alternate
Calculation,” “—Consequences of a Market Disruption Event; Postponement of a Calculation Day” and “Alternate
Exchange Calculation in Case of an Event of Default” in the accompanying product supplement for principal at risk securities. In
addition, MS & Co. has determined the estimated value of the securities on the pricing date. |
| § | Hedging and trading activity by our affiliates could potentially adversely
affect the value of the securities. One or more of our affiliates and/or third-party dealers expect to carry out hedging activities
related to the securities (and possibly to other instruments linked to the underlyings or the component stocks of the Indices or fund
underlying index), including trading in the shares of the Fund or the stocks that constitute the Indices or the fund underlying index
as well as in other instruments related to the underlyings. 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 affiliates also trade the shares of the Fund or the stocks that constitute the Indices or
fund underlying index and other financial instruments related to the underlyings 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 potentially affect the starting
level of an underlying, and, therefore, could increase the level at or above which such underlying must close on the calculation day so
that investors do not suffer a loss on their initial investment in the securities (depending also on the performance of the other underlyings).
Additionally, such hedging or trading activities during the term of the securities, including on the calculation day, could adversely
affect the level of an underlying on the calculation day, and, accordingly, the amount of cash an investor will receive at maturity (depending
also on the performance of the other underlyings). |
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
| § | The maturity date may be postponed if the calculation day is postponed.
If the scheduled calculation day is not a trading day or if a market disruption event occurs on that day so that the calculation day is
postponed and falls less than three business days prior to the maturity date, the maturity date of the securities will be postponed to
the third business day following that calculation day as postponed. |
| § | Potentially inconsistent research, opinions or recommendations by Morgan
Stanley, MSFL, WFS or our or their respective affiliates. Morgan Stanley, MSFL, WFS and our or 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 Morgan Stanley, MSFL, WFS or our 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 underlyings 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 Information About the Securities—Tax considerations”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for principal
at risk securities (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 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. In addition, there is no direct legal authority regarding the proper U.S. federal tax treatment
of the securities, and we do not plan to request a ruling from the Internal Revenue Service (the “IRS”). Consequently, significant
aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the tax treatment of a security
as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. If the IRS were successful
in asserting an alternative treatment of the securities, the tax consequences of the ownership and disposition of the securities, including
the timing and character of income recognized by U.S. Holders and the withholding tax consequences to Non-U.S. Holders, might be materially
and adversely affected. Moreover, future legislation, Treasury regulations or IRS guidance could adversely affect the U.S. federal tax
treatment of the securities, possibly retroactively. |
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, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Risks Relating to the Underlyings
| § | You are exposed to the price risk of each underlying. Your return
on the securities is not linked to a basket consisting of each underlying. Rather, it will be based upon the independent performance of
each underlying. Unlike an instrument with a return linked to a basket of underlying assets, in which risk is mitigated and diversified
among all the components of the basket, you will be exposed to the risks related to each underlying. Poor performance by any underlying
over the term of the securities will negatively affect your return and will not be offset or mitigated by any positive performance by
the other underlyings. If any underlying has declined to below its respective threshold level as of the calculation day, you will be exposed
to the negative performance of the lowest performing underlying at maturity, even if the other underlyings have appreciated or have not
declined as much, and you will lose a significant portion or all of your investment. Accordingly, your investment is subject to the price
risk of each underlying. |
| § | Because the securities are linked to the performance of the lowest performing
underlying, you are exposed to greater risk of sustaining a significant loss on your investment than if the securities were linked to
just one underlying. The risk that you will suffer a significant loss on your investment is greater if you invest in the securities
as opposed to substantially similar securities that are linked to the performance of just one underlying. With three underlyings, it is
more likely that any underlying will decline to below its threshold level as of the calculation day, than if the securities were linked
to only one underlying. Therefore it is more likely that you will suffer a significant loss on your investment. |
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
| § | The securities are linked to the Russell 2000® Index
and are subject to risks associated with small-capitalization companies. As the Russell 2000® Index is the
underlying index, and the Russell 2000® Index consists of stocks issued by companies with relatively small market
capitalization, the securities are linked to the value of small-capitalization companies. 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 underlyings 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. |
| § | Investing in the securities exposes investors to risks associated with
investments with a concentration in the technology sector. The stocks included in the Technology Select Sector Index and that are
generally tracked by the Technology Select Sector SPDR® Fund are stocks of companies whose primary business is directly
associated with the technology sector, including the following sub-sectors: computers and peripherals, software, diversified telecommunication
services, communications equipment, semiconductors and semiconductor equipment, internet software and services, IT services, electronic
equipment, instruments and components, wireless telecommunication services and office electronics. Because the value of the securities
is linked to the performance of the XLK Shares, an investment in the securities exposes investors to risks associated with investments
in securities with a concentration in the technology sector. |
The values of stocks of technology companies
and companies that rely heavily on technology are particularly vulnerable to rapid changes in technology product cycles, rapid product
obsolescence, government regulation and competition, both domestically and internationally, including competition from foreign competitors
with lower production costs. Technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Additionally, companies in the technology sector may face
dramatic and often unpredictable changes in growth rates and competition for the services of qualified personnel. All of these factors
could have an effect on the price of the XLK Shares and, therefore, on the value of the securities.
| § | The performance and market price of the Fund, particularly during periods
of market volatility, may not correlate with the performance of the fund underlying index, the performance of the component securities
of the fund underlying index or the net asset value per share of the Fund. The Fund does not fully replicate the fund underlying index
and may hold securities that are different than those included in the fund underlying index. In addition, the performance of the Fund
will reflect additional transaction costs and fees that are not included in the calculation of the fund underlying index. All of these
factors may lead to a lack of correlation between the performance of the Fund and the fund underlying index. In addition, corporate actions
(such as mergers and spin-offs) with respect to the equity securities constituting the Fund may impact the variance between the performances
of Fund and the fund underlying index. Finally, because the shares of the Fund are traded on an exchange and are subject to market supply
and investor demand, the market price of one share of the Fund may differ from the net asset value per share of the Fund. |
In particular, during periods of market
volatility, or unusual trading activity, trading in the securities constituting the Fund may be disrupted or limited, or such securities
may be unavailable in the secondary market. Under these circumstances, the liquidity of the Fund may be adversely affected, market participants
may be unable to calculate accurately the net asset value per share of the Fund, and their ability to create and redeem shares of the
Fund may be disrupted. Under these circumstances, the market price of shares of the Fund may vary substantially from the net asset value
per share of the Fund or the level of the fund underlying index.
For all of the foregoing reasons, the
performance of the Fund may not correlate with the performance of the fund underlying index, the performance of the component securities
of the fund underlying index or the net asset value per
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
share of the Fund. Any of these events
could materially and adversely affect the price of the shares of the Fund and, therefore, the value of the securities. Additionally, if
market volatility or these events were to occur on the calculation day, the calculation agent would maintain discretion to determine whether
such market volatility or events have caused a market disruption event to occur, and such determination may affect the payment at maturity
of the securities. If the calculation agent determines that no market disruption event has taken place, the payment at maturity would
be based on the published fund closing price per share of the Fund on the calculation day, even if the Fund’s shares are underperforming
the fund underlying index or the component securities of the fund underlying index and/or trading below the net asset value per share
of the Fund.
| § | Adjustments to the Indices could adversely affect the value of the securities.
The publisher of any Index may add, delete or substitute the stocks constituting such Index or make other methodological changes that
could change the value of such Index. The publisher of such Index may discontinue or suspend calculation or publication of such Index
at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor Index that is comparable
to the discontinued Index and is permitted to consider indices that are calculated and published by the calculation agent or any of its
affiliates. If the calculation agent determines that there is no appropriate successor Index, the
maturity payment amount on the securities will be an amount based on the closing prices at maturity of the securities composing such Index
at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula
for calculating such Index last in effect prior to discontinuance of the Index. |
| § | Adjustments to the Fund or to the fund underlying index could adversely
affect the value of the securities. The investment adviser to the XLK Shares, SSGA Funds Management, Inc. (the “Investment Adviser”),
seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the fund underlying
index. Pursuant to its investment strategy or otherwise, the Investment Adviser may add, delete or substitute the components securities
of the Fund. Any of these actions could adversely affect the price of the shares of the Fund and, consequently, the value of the securities.
In addition, the fund underlying index sponsor of the Fund is responsible for calculating and maintaining the fund underlying index. The
fund underlying index sponsor may add, delete or substitute the stocks constituting the fund underlying index or make other methodological
changes that could change the value of the shares of the Fund. The fund underlying index sponsor may also discontinue or suspend calculation
or publication of a fund underlying index at any time. If this discontinuance or suspension occurs following the termination of the Fund,
the calculation agent will have the sole discretion to substitute a successor index that is comparable to the discontinued fund 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 values of the shares of the Fund and, consequently, the value of the securities. |
| § | Historical levels of the underlyings should not be taken as an indication
of the future performance of the underlyings during the term of the securities. No assurance can be given as to the level of the underlyings
at any time, including on the calculation day, because historical levels of the underlyings do not provide an indication of future performance
of the underlyings. |
| § | The antidilution adjustments the calculation agent is required to make
do not cover every event that could affect the Fund. MS & Co., as calculation agent, will adjust the adjustment factor for certain
events affecting the Fund. However, the calculation agent will not make an adjustment for every event that could affect the Fund. 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. |
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Russell 2000® Index Overview |
The Russell 2000® Index is an index calculated, published
and disseminated by FTSE International Limited (“FTSE Russell”), and measures the capitalization-weighted price performance
of 2,000 U.S. small-capitalization stocks listed on eligible U.S. exchanges. The Russell 2000® Index is designed to track
the performance of the small-capitalization segment of the U.S. equity market. The companies included in the Russell 2000®
Index are the middle 2,000 (i.e., those ranked 1,001 through 3,000) of the companies that form the Russell 3000E™ Index. The Russell
2000® Index represents approximately 7% of the U.S. equity market. For additional information about the Russell 2000®
Index, see the information set forth under “Russell Indices—Russell 2000® Index” in the accompanying
index supplement.
The following graph sets forth the daily closing levels of the RTY
Index for the period from January 1, 2019 through August 6, 2024. The closing level of the RTY Index on August 6, 2024 was 2,064.302.
We obtained the information in the graph below from Bloomberg Financial Markets without independent verification. The RTY Index has at
times experienced periods of high volatility. You should not take the historical levels of the RTY Index as an indication of its future
performance, and no assurance can be given as to the closing level of the RTY Index on the calculation day.
Russell 2000®
Index
Daily Closing Levels
January 1, 2019 to August 6,
2024
|
|
“Russell 2000® Index” and “Russell
3000ETM Index” are trademarks of FTSE Russell. For more information, see “Russell Indices” in the accompanying
index supplement.
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Technology Select Sector SPDR® Fund Overview |
The Technology Select Sector SPDR® Fund is an exchange-traded
fund managed by the Select Sector SPDR® Trust (the “Trust”), a registered investment company. The Trust consists
of numerous separate investment portfolios, including the Technology Select Sector SPDR® Fund. The Technology Select Sector
SPDR® Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses,
of the Technology Select Sector Index. It is possible that this fund may not fully replicate the performance of the Technology Select
Sector Index due to the temporary unavailability of certain securities in the secondary market or due to other extraordinary circumstances.
Information provided to or filed with the Securities and Exchange Commission (the “Commission”) by the Trust pursuant to the
Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file numbers 333-57791 and 811-08837,
respectively, through the Commission’s website at www.sec.gov. In addition, information may be obtained from other publicly available
sources. Neither the issuer nor the agent makes any representation that any such publicly available information regarding the Technology
Select Sector SPDR® Fund is accurate or complete.
The following graph sets forth the daily closing prices of the XLK
Shares for the period from January 1, 2019 through August 6, 2024. The closing price of the XLK Shares on August 6, 2024 was $200.59.
We obtained the information in the graph below from Bloomberg Financial Markets without independent verification. The XLK Shares have
at times experienced periods of high volatility. You should not take the historical prices of the XLK Shares as an indication of its future
performance, and no assurance can be given as to the closing price of the XLK Shares on the calculation day.
Shares of the Technology Select
Sector SPDR® Fund – Daily Closing Prices
January 1, 2019 to August 6,
2024
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This document relates only to the securities offered hereby and
does not relate to the XLK Shares. We have derived all disclosures contained in this document regarding the Trust 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 the Trust. Neither we nor
the agent makes any representation that such publicly available documents or any other publicly available information regarding the 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 XLK Shares (and therefore the price of the XLK Shares at the time we price 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 Trust could affect the
value received with respect to the securities and therefore the value of the securities.
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Neither we nor any of our affiliates makes any representation to
you as to the performance of the XLK Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information with
respect to the 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 XLK 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 Trust as in your judgment is appropriate to make
an informed decision with respect to an investment linked to the XLK Shares.
“Standard & Poor’s®”, “S&P®”,
“S&P 500®”, “SPDR®”, “Select Sector SPDR®” and “Select
Sector SPDRs” are trademarks of Standard & Poor’s Financial Services LLC (“S&P®”),
an affiliate of S&P® Global Inc. The securities are not sponsored, endorsed, sold, or promoted by S&P®,
S&P® Global Inc. or the Trust. S&P®, S&P® Global Inc. and
the Trust 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®, S&P® Global Inc. and the Trust have no obligation
or liability in connection with the operation, marketing, trading or sale of the securities.
Technology Select Sector Index.
The Technology Select Sector Index, which is one of the Select Sector sub-indices of the S&P 500® Index, is
intended to give investors an efficient, modified market capitalization-based way to track the movements of certain public companies that
represent the technology sector of the S&P 500® Index. The Technology Select Sector Index includes component stocks
in industries such as technology hardware, storage and peripherals; software; diversified telecommunication services; communications equipment;
semiconductor and semiconductor equipment; internet software and services; IT services; wireless telecommunication services; and electronic
equipment and instruments. For more information, see “S&P® Select Sector Indices—Technology Select Sector
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
The S&P 500® Index, which is calculated, maintained
and published by S&P® Dow Jones Indices LLC (“S&P®”), is intended to provide a benchmark
for performance measurement of the large capitalization segment of the U.S. equity markets by tracking the stock price movement of 500
companies with large market capitalizations. Component stocks of the S&P 500® Index are required to have a total company
level market capitalization that reflects approximately the 85th percentile of the S&P® Total Market Index.
The S&P 500® Index measures the relative performance of the common stocks of 500 companies as of a particular time
as compared to the performance of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. For
additional information about the S&P 500® Index, see the information set forth under “S&P®
U.S. Indices—S&P 500® Index” in the accompanying index supplement.
The following graph sets forth the daily closing levels of the SPX
Index for the period from January 1, 2019 through August 6, 2024. The closing level of the SPX Index on August 6, 2024 was 5,240.03. We
obtained the information in the graph below from Bloomberg Financial Markets without independent verification. The SPX Index has at times
experienced periods of high volatility. You should not take the historical levels of the SPX Index as an indication of its future performance,
and no assurance can be given as to the closing level of the SPX Index on the calculation day.
S&P 500®
Index
Daily Closing Levels
January 1, 2019 to August 6,
2024
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“Standard & Poor’s®,” “S&P®,”
“S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of Standard
and Poor’s Financial Services LLC. For more information, see “S&P® U.S. Indices” in the accompanying
index supplement.
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Additional Information About the Securities |
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, it is reasonable to treat a security as a single
financial contract that is an “open transaction” for U.S. federal income tax purposes. However, because our counsel’s
opinion is based in part on market conditions as of the date of this document, it is subject to confirmation on the pricing date.
Assuming this treatment of the securities is respected
and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for principal at
risk securities, the following U.S. federal income tax consequences should result based on current law:
| § | 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 short-term capital gain or loss otherwise. |
Because the securities are linked to shares of
an exchange-traded fund, although the matter is not clear, there is a 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). As a result of certain features of the securities, including the leveraged
upside payment and the fact that the securities are linked to indices in addition to an exchange-traded fund, it is unclear how to calculate
the amount of gain that would be recharacterized if an investment in the securities were treated as a constructive ownership transaction.
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—Possible
Application of Section 1260 of the Code” in the accompanying product supplement for principal at risk securities for additional
information and consult their tax advisers regarding the potential application of the “constructive ownership” rule.
We do not plan to request a ruling from the Internal
Revenue Service (the “IRS”) regarding the treatment of the securities. An alternative characterization of the securities could
materially and adversely affect the tax consequences of ownership and disposition of the securities, including the timing and character
of income recognized. In addition, the U.S. Treasury Department and the IRS have requested comments on various issues regarding the U.S.
federal income tax treatment of “prepaid forward contracts” and similar financial instruments and have indicated that such
transactions may be the subject of future regulations or other guidance. Furthermore, members of Congress have proposed legislative changes
to the tax treatment of derivative contracts. Any legislation, 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 in the accompanying product supplement
for principal at risk securities, Section 871(m) of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”)
generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders
with respect to certain financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying
Security”). Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic
performance of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2027 that do
not have a delta of one with respect to any Underlying Security. Based on the terms of the securities and current market conditions, we
expect that the securities will not have a delta of one with respect to any Underlying Security on the pricing date. However, we will
provide an updated determination in the final pricing supplement. Assuming that the securities do not have a delta of one with respect
to any Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities and, therefore, should
not be subject to Section 871(m).
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
Our determination is not binding on the IRS, and
the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances,
including whether you enter into other transactions with respect to an Underlying Security. If withholding is required, we will not be
required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser regarding the potential
application of Section 871(m) 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 principal at risk securities 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, 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 principal at risk securities, 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.
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 up to $33.25 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 (“WFA”)
(the trade name of the retail brokerage business of WFS’s affiliates, Wells Fargo Clearing Services, LLC and Wells Fargo Advisors
Financial Network, LLC), an affiliate of WFS, or other securities dealers at such price less a selling concession of up to $27.50 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.
In addition, in respect of certain securities sold
in this offering, we may pay a fee of up to $4.00 per security to selected securities dealers in consideration for marketing and other
services in connection with the distribution of the securities to other securities dealers.
See "Plan of Distribution, Conflicts of Interest"
in the accompanying product supplement for principal at risk securities 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 an affiliate of MSFL and a wholly
owned subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable,
hedging the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities,
including the maximum return, such that for each security the estimated value on the pricing date will be no lower than the minimum level
described in “Estimated Value of the Securities” beginning on page 4.
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 principal at risk securities.
Where you can find more information
Morgan Stanley and MSFL have filed a registration
statement (including a prospectus, as supplemented by the product supplement for principal at risk securities and the index supplement)
with the Securities and Exchange Commission, or SEC,
Morgan Stanley Finance LLC
Market Linked Securities—Leveraged Upside Participation to a Cap with Contingent Absolute Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Russell 2000® Index, the Technology Select Sector SPDR® Fund and the S&P 500® Index due August 21, 2028
for the offering to which this communication relates.
You should read the prospectus in that registration statement, the product supplement for principal at risk securities, the index supplement
and any other documents relating to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete information about
Morgan Stanley, MSFL and this offering. When you read the accompanying product supplement and index supplement, please note that all references
in such supplements to the prospectus dated November 16, 2023, or to any sections therein, should refer instead to the accompanying prospectus
dated April 12, 2024 or to the corresponding sections of such prospectus, as applicable. You may get these documents without cost by visiting
EDGAR on the SEC web site at.www.sec.gov. Alternatively, Morgan Stanley, MSFL, any underwriter or any
dealer participating in the offering will arrange to send you the product supplement for principal at risk securities, index supplement
and prospectus if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site
at.www.sec.gov as follows:
Product
Supplement for Principal at Risk Securities dated November 16, 2023
Index
Supplement dated November 16, 2023
Prospectus
dated April 12, 2024
Terms used but not defined in this document are
defined in the product supplement for principal at risk securities, in the index supplement or in the prospectus.
Morgan Stanley (NYSE:MS-P)
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