June 2024
Preliminary Pricing Supplement No. 2,612
Registration Statement Nos. 333-275587; 333-275587-01
Dated June 14, 2024
Filed pursuant to Rule 424(b)(2)
Morgan Stanley Finance LLC
Structured Investments
Opportunities in U.S. Equities
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
Fully and Unconditionally Guaranteed by Morgan Stanley
| § | Linked to the lowest performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® 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. |
| § | Unlike ordinary debt securities, the securities do not pay interest or repay a fixed amount of principal at maturity. Instead, the securities provide for a maturity payment amount that may be greater than or less than the face amount of the securities, depending on the performance of the lowest performing underlying from its starting level to its ending level. The maturity payment amount will reflect the following terms: |
| § | If the level of the lowest performing underlying increases (regardless of the extent of that increase), stays the same or decreases but the decrease is to a level that is greater than or equal to its threshold level, you will receive the face amount plus the contingent fixed return of at least 23% of the face amount (to be determined on the pricing date) |
| § | If the level of the lowest performing underlying decreases to a level less than its threshold level, you will receive less than the face amount and have 1-to-1 downside exposure to the decrease in the level of the lowest performing underlying from its starting level in excess of 25% |
| § | The lowest performing underlying is the underlying that has the lowest underlying return |
| § | The threshold level for each underlying is equal to 75% of its starting level |
| § | Investors may lose up to 75% of the face amount |
| § | The securities are for investors who seek an equity index-based return and who are willing to risk their investment and forgo current income in exchange for the contingent fixed return feature and buffer feature that, in each case, apply only if the ending level of each underlying is greater than or equal to its respective threshold level |
| § | Any positive return on the securities at maturity will be limited to the contingent fixed return, even if the ending level of the lowest performing underlying significantly exceeds its starting level; you will not participate in any appreciation of the lowest performing underlying beyond the contingent fixed return |
| § | Your return on the securities will depend solely on the performance of the underlying that is the lowest performing underlying. You will not benefit in any way from the performance of the better performing underlyings. Therefore, you will be adversely affected if any underlying performs poorly, even if the other underlyings perform favorably |
| § | The securities are notes issued as part of MSFL’s Series A Global Medium-Term Notes program |
| § | The Nasdaq-100® Technology Sector IndexSM measures the performance of companies in the Nasdaq-100 Index® that are classified as technology according to the Industry Classification Benchmark. For more information about the Nasdaq-100 Index®, see the information set forth under “Nasdaq-100 Index®” in the accompanying index supplement. For more information about the Nasdaq-100® Technology Sector IndexSM, see “Annex A — Nasdaq-100® Technology Sector IndexSM” beginning on page 21. |
| § | 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 $954.30 per security, or within $45.00 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 for principal at risk securities, 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 | $25.75 | $974.25 |
| Total | $ | $ | $ |
| (1) | Wells Fargo Securities, LLC, an agent for this offering, will receive a commission of up to $25.75 for each security it sells. Dealers, including Wells Fargo Advisors (“WFA”), may receive a selling concession of up to $20 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 $3.50 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 for principal at risk securities. |
| Product Supplement for Principal at Risk Securities dated November 16, 2023 | Index Supplement dated November 16, 2023 |
Prospectus dated April 12, 2024
| Morgan Stanley | Wells Fargo Securities |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| Terms |
| Issuer: | Morgan Stanley Finance LLC |
| Guarantor: | Morgan Stanley |
| Maturity date: | June 24, 2027†, subject to postponement if the calculation day is postponed* |
| Underlyings: | Nasdaq-100® Technology Sector IndexSM (the “NDXT Index”), Dow Jones Industrial AverageSM (the “INDU Index”) and the Russell 2000® Index (the “RTY Index”) (each referred to as an “underlying,” and collectively as the “underlyings”) |
| Aggregate face amount: | $ |
| 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 or equal to its threshold level:
$1,000 + contingent fixed return;
§ 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 75% less, than the face amount of your securities at maturity.
Notwithstanding anything to the contrary in the accompanying product supplement for principal at risk securities, the amount you will receive at maturity will be the maturity payment amount, defined and calculated as provided in this document. |
| Contingent fixed return: | At least 23% of the face amount (at least $230 per security), to be determined on the pricing date) |
| Lowest performing underlying: | The underlying with the lowest underlying return |
| Underlying return: | With respect to an underlying, the percentage change from its starting level to its ending level, measured as follows:
ending level – starting level starting level |
| Starting level: | With respect to the NDXT Index: , its closing level on the pricing date. With respect to the INDU Index: , its closing level on the pricing date. With respect to the RTY Index: , its closing level on the pricing date. |
| Ending level: | With respect to each underlying, its closing level on the calculation day. |
| Calculation day: | June 21, 2027**† |
| Threshold level: | With respect to the NDXT Index: , which is equal to 75% of its starting level. With respect to the INDU Index: , which is equal to 75% of its starting level. With respect to the RTY Index: , which is equal to 75% of its starting level. |
| Buffer amount: | 25% |
| 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: | June 20, 2024† |
| Original issue date: | June 25, 2024† (3 business days after the pricing date) |
| CUSIP / ISIN: | 61776MMT9 / US61776MMT98 |
| Listing: | The securities will not be listed on any securities exchange. |
| June 2024 | Page 2 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| 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.
| June 2024 | Page 3 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| 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 $954.30, or within $45.00 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 contingent fixed return 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 3 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.
| June 2024 | Page 4 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| Investor Considerations |
The Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027 (the “securities”) may be appropriate for investors who:
| § | Seek a contingent fixed return if the ending level of the lowest performing underlying is greater than or equal to its threshold level |
| § | Understand that if the ending level of the lowest performing underlying is less than its threshold level, they will receive less, and possibly 75% less, than the face amount at maturity |
| § | Understand that any positive return they will receive at maturity will be limited to the contingent fixed return, regardless of the extent to which the ending level of the lowest performing underlying exceeds its starting level |
| § | 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 |
| § | Desire to obtain a buffer against a specified level of negative performance in the underlyings |
| § | 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 return that is not limited by a contingent fixed payment |
| § | Seek a liquid investment or are unable or unwilling to hold the securities to maturity |
| § | Are unwilling to accept the risk that the closing level of the lowest performing underlying may decrease by more than 25% from its starting level, resulting in a loss of some or a significant portion of the initial investment |
| § | 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 principal at risk securities for risks related to an investment in the securities. For more information about the underlyings, please see the sections titled “Nasdaq-100® Technology Sector IndexSM Overview,” “Dow Jones Industrial AverageSM Overview” and “Russell 2000® Index” below.
| June 2024 | Page 5 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| Determining Maturity Payment Amount |
At maturity, the maturity payment amount per $1,000 face amount of securities will be determined as follows:
| June 2024 | Page 6 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| How the Securities Work |
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 |
| Hypothetical contingent fixed return: | 23% of the face amount. The actual contingent fixed return will be determined on the pricing date. |
| Threshold level: | 75% of the starting level of the lowest performing underlying |
| Buffer amount: | 25% |
| June 2024 | Page 7 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| 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: | Approximately 3 years |
| Hypothetical starting level: | With respect to the NDXT Index: 100 With respect to the INDU Index: 100 With respect to the RTY Index: 100 |
| Hypothetical threshold level: | With respect to the NDXT Index, 75, which is 75% of its respective hypothetical starting level With respect to the INDU Index, 75, which is 75% of its respective hypothetical starting level With respect to the RTY Index, 75, which is 75% of its respective hypothetical starting level |
| Buffer amount: | 25% |
| Hypothetical contingent fixed return: | 23% of the face amount. The actual contingent fixed return will be determined on the pricing date. |
*The hypothetical starting level of 100 for each underlying 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 contingent fixed 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 substantially over the term of the securities, and investors therefore receive the face amount plus the contingent fixed return. Investors do not participate in the appreciation of any of the underlyings.
| Ending level | NDXT Index: 200 INDU Index: 250 RTY Index: 240 | |
| Underlying return | NDXT Index: (200 – 100) / 100 = 100% INDU Index: (250 – 100) / 100 = 150% RTY Index: (240 – 100) / 100 = 140% | |
| Maturity payment amount | = | $1,000 + contingent fixed return |
| = | $1,000 + $230 | |
| = | $1,230 |
In example 1, the ending level of each of the NDXT Index, INDU Index and RTY Index is greater than its starting level. The NDXT Index has appreciated by 100%, the INDU Index has appreciated by 150%, while the RTY Index has appreciated by 140%. Therefore, investors receive at maturity the face amount plus the contingent fixed return of $230 per face amount. Investors receive $1,230 per security at maturity. The actual contingent fixed return will be determined on the pricing date.
| June 2024 | Page 8 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
Example 2 — Two of the underlyings appreciate while one declines over the term of the securities, but none of the underlyings declines below its respective threshold level. Investors receive the face amount plus the contingent fixed return.
| Ending level | NDXT Index: 110 INDU Index: 80 RTY Index: 120 | |
| Underlying return | NDXT Index: (110 – 100) / 100 = 10% INDU Index: (80 – 100) / 100 = -20% RTY Index: (120 – 100) / 100 = 20% | |
| Maturity payment amount | = | $1,000 + contingent fixed return |
| = | $1,000 + $230 | |
| = | $1,230 |
In example 2, the ending levels of both the NDXT Index and the RTY Index are greater than the respective starting levels, while the ending level of the INDU Index is less than its
starting level, but is greater than or equal to its respective threshold level. Therefore, investors receive at maturity the face amount plus the contingent fixed return of $230 per face amount. The actual contingent fixed return will be determined on the pricing date.
Example 3 — Two underlying appreciate while the other declines over the term of the securities, and the ending level of the lowest performing underlying is less than its respective threshold level. Investors are therefore exposed to the decline in the lowest performing underlying from its starting level.
| Ending level | NDXT Index: 130 INDU Index: 130 RTY Index: 30 | |
| Underlying return | NDXT Index: (130 – 100) / 100 = 30% INDU Index: (130 – 100) / 100 = 30% RTY 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% + 25%)] | |
| = | $550 |
In example 3, the ending level of both the NDXT Index and the INDU Index are greater than the respective starting levels, while the ending level of the RTY Index has declined below its threshold level. Because the ending level of the RTY Index has declined below its threshold level, investors are exposed on a 1-to-1 basis to the negative performance of the RTY Index, which is the lowest performing underlying, in excess of 25%. Investors receive a maturity payment amount of $550.
Example 4 — Each underlying declines below its respective threshold level. Investors are therefore exposed to the decline in the lowest performing underlying from its starting level.
| Ending level | NDXT Index: 60 INDU Index: 40 RTY Index: 30 | |
| Underlying return | NDXT Index: (60 – 100) / 100 = -40% INDU Index: (40 – 100) / 100 = -60% RTY 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% + 25%)] | |
| = | $550 |
In example 4, the ending level of each underlying is less than its respective threshold level. The NDXT Index has declined by 40%, the INDU Index has declined by 60%, while the RTY Index has declined by 70%. Therefore, investors are exposed on a 1-to-1 basis to the
| June 2024 | Page 9 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
negative performance of the RTY Index, which is the lowest performing underlying, in excess of 25%. Investors receive a maturity payment amount of $550.
If the ending level of the lowest performing underlying is below its respective threshold level on the calculation day, the securities will be exposed on a 1-to-1 basis to any decline in the level of the lowest performing underlying in excess of 25%. Under these circumstances, you may lose up to 75% of the face amount of your securities at maturity.
| June 2024 | Page 10 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
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% | $1,230.00 | 23.00% |
| 190 | 90.00% | $1,230.00 | 23.00% |
| 180 | 80.00% | $1,230.00 | 23.00% |
| 170 | 70.00% | $1,230.00 | 23.00% |
| 160 | 60.00% | $1,230.00 | 23.00% |
| 150 | 50.00% | $1,230.00 | 23.00% |
| 140 | 40.00% | $1,230.00 | 23.00% |
| 130 | 30.00% | $1,230.00 | 23.00% |
| 120 | 20.00% | $1,230.00 | 23.00% |
| 110 | 10.00% | $1,230.00 | 23.00% |
| 105 | 5.00% | $1,230.00 | 23.00% |
| 100(3) | 0.00% | $1,230.00 | 23.00% |
| 95 | -5.00% | $1,230.00 | 23.00% |
| 90 | -10.00% | $1,230.00 | 23.00% |
| 80 | -20.00% | $1,230.00 | 23.00% |
| 75 | -25.00% | $1,230.00 | 23.00% |
| 74 | -26.00% | $990.00 | -1.00% |
| 70 | -30.00% | $950.00 | -5.00% |
| 60 | -40.00% | $850.00 | -15.00% |
| 50 | -50.00% | $750.00 | -25.00% |
| 40 | -60.00% | $650.00 | -35.00% |
| 30 | -70.00% | $550.00 | -45.00% |
| 20 | -80.00% | $450.00 | -55.00% |
| 10 | -90.00% | $350.00 | -65.00% |
| 0 | -100.00% | $250.00 | -75.00% |
*The underlyings exclude cash dividend payments on stocks included in the underlyings.
| (1) | Assumes a contingent fixed return of 23% of the face amount. The actual contingent fixed 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 the lowest performing underlying. |
| June 2024 | Page 11 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| Risk Factors |
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 75% 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 75% of its starting level, you will receive less, and up to 75% less, than the face amount of your securities at maturity. Investors may lose some or a significant portion of their investment in the securities. |
| § | Your potential return on the securities is fixed and limited. Your potential return on the securities at maturity is limited to the contingent fixed return. Your return on the securities will not exceed the contingent fixed return, even if the lowest performing underlying appreciates by significantly more than the return represented by the contingent fixed return. If the lowest performing underlying appreciates by more than the return represented by the contingent fixed return, the securities will underperform an alternative investment providing 1-to-1 exposure to the performance of the lowest performing underlying. |
| § | 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 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 “Nasdaq-100® Technology Sector IndexSM Overview,” “Dow Jones Industrial AverageSM Overview” and “Russell 2000® Index Overview” below. You may receive less, and up to 75% 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. |
| § | 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 all of the underlyings appreciate prior to the calculation day but the level of any of the underlyings decreases by the calculation day, the maturity payment amount will 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 of the underlyings on the calculation day. |
| June 2024 | Page 12 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| § | Investing in the securities is not equivalent to investing in the underlyings. Investing in the securities is not equivalent to investing in the underlyings or the component stocks or any underlying. 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 any underlying. |
| § | 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 3 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 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 a closing level in the event of a market disruption event or discontinuance of an underlying. 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,” “—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 |
| June 2024 | Page 13 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
instruments linked to the underlyings or the component stocks of the underlyings), including trading in the stocks that constitute the underlyings 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 final calculation day approaches. Some of our affiliates also trade the stocks that constitute the underlyings 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).
| § | 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. 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 declines 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 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 loss on your investment than if the securities were linked to just one underlying. The risk that you will suffer a loss on your investment is greater if you invest in the securities as opposed to substantially similar securities that are linked to just the performance of 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 loss on your investment. |
| § | Investing in the securities exposes investors to risks associated with investments in securities with a concentration in the technology sector. The stocks included in the NDXT Index are stocks of companies whose primary |
| June 2024 | Page 14 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
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 NDXT Index, 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 affect the value of the NDXT Index and, therefore, the value of the securities.
| § | 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 one of the underlyings, 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. |
| § | Adjustments to the underlyings could adversely affect the value of the securities. The publisher of any underlying may add, delete or substitute the stocks constituting such underlying or make other methodological changes that could change the value of such underlying. The publisher of such underlying may discontinue or suspend calculation or publication of such underlying at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor underlying that is comparable to the discontinued underlying and is permitted to consider underlyings 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 underlying, the maturity payment amount on the securities will be an amount based on the closing prices at maturity of the securities composing such underlying at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating such underlying last in effect prior to discontinuance of the underlying. |
| § | 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. |
| June 2024 | Page 15 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| Nasdaq-100® Technology Sector IndexSM Overview |
The Nasdaq-100® Technology Sector IndexSM, which is calculated, maintained and published by The Nasdaq OMX Group, Inc. (“Nasdaq OMX”), is an equal-weighted index intended to measure the performance of Nasdaq-listed companies that are classified as technology according to the Industry Classification Benchmark. For additional information about the Nasdaq-100® Technology Sector IndexSM, see “Annex A — Nasdaq-100® Technology Sector IndexSM” below.
The following graph sets forth the daily closing levels of the NDXT Index for the period from January 1, 2019 through June 12, 2024. The closing level of the NDXT Index on June 12, 2024 was 10,724.43. We obtained the information in the graph below from Bloomberg Financial Markets without independent verification. The NDXT Index has at times experienced periods of high volatility. You should not take the historical levels of the NDXT Index as an indication of its future performance, and no assurance can be given as to the closing level of the NDXT Index at any time, including on the calculation day.
Nasdaq-100® Technology Sector IndexSM Daily Closing Levels January 1, 2019 to June 12, 2024 |
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“Nasdaq®,” “Nasdaq-100®” and “Nasdaq-100 Index®” are trademarks of Nasdaq, Inc. For more information, see “Annex A — Nasdaq-100® Technology Sector IndexSM” below.
| June 2024 | Page 16 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| Dow Jones Industrial AverageSM Overview |
The Dow Jones Industrial AverageSM is a price-weighted index composed of 30 common stocks that is published by S&P® Dow Jones Indices LLC, the marketing name and a licensed trademark of CME Group Inc., as representative of the broad market of U.S. industry. For additional information about the Dow Jones Industrial AverageSM, see the information set forth under “Dow Jones Industrial AverageSM” in the accompanying index supplement.
The following graph sets forth the daily closing levels of the INDU Index for the period from January 1, 2019 through June 12, 2024. The closing level of the INDU Index on June 12, 2024 was 38,712.21. We obtained the information in the graph below from Bloomberg Financial Markets without independent verification. The INDU Index has at times experienced periods of high volatility. You should not take the historical levels of the INDU Index as an indication of its future performance, and no assurance can be given as to the closing level of the INDU Index at any time, including on the calculation day.
Dow Jones Industrial AverageSM Daily Closing Levels January 1, 2019 to June 12, 2024 |
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“Dow Jones,” “Dow Jones Industrial Average,” “Dow Jones Indexes” and “DJIA” are service marks of Dow Jones Trademark Holdings LLC. For more information, see “Dow Jones Industrial AverageSM” in the accompanying index supplement.
| June 2024 | Page 17 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| 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 June 12, 2024. The closing level of the RTY Index on June 12, 2024 was 2,057.100. 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 at any time, including on the calculation day.
Russell 2000® Index Daily Closing Levels January 1, 2019 to June 12, 2024 |
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“Russell 2000® Index” and “Russell 3000ETM Index” are trademarks of FTSE Russell. For more information, see “Russell Indices” in the accompanying index supplement.
| June 2024 | Page 18 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| 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. 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. |
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 Internal Revenue Code of 1986, as amended, 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 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).
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, 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
| June 2024 | Page 19 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
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 $25.75 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 $20 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 $3.50 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 contingent fixed 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, 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.
| June 2024 | Page 20 |
Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
Annex A — Nasdaq-100® Technology Sector IndexSM
The Nasdaq-100® Technology Sector IndexSM was developed by Nasdaq and is calculated, maintained and published by The Nasdaq OMX Group, Inc. (“Nasdaq OMX”). The underlying index is designed to measure the performance of Nasdaq-listed companies that are classified as technology according to the Industry Classification Benchmark which also meet other eligibility criteria determined by Nasdaq. The underlying index is reported by Bloomberg under the ticker symbol “NDXT.” All information contained in this document regarding the Nasdaq-100® Technology Sector IndexSM has been derived from publicly available information, without independent verification.
The Nasdaq-100® Technology Sector IndexSM is calculated under an equal-weighted methodology. On February 22, 2006, the Nasdaq-100® Technology Sector IndexSM began with a base of 1,000.00. To be eligible for inclusion in the Nasdaq-100® Technology Sector IndexSM, a security and its issuer must meet the following criteria:
| · | the security must be included in the Nasdaq-100 Index® |
| · | the issuer of the security’s primary U.S. listing must be exclusively on the Nasdaq Global Select Market or the Nasdaq Global Market; |
| · | the issuer of the security must be classified as Technology according to the Industry Classification Benchmark (“ICB”); |
| · | if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then that security must have listed options on a registered options market in the United States or be eligible for listed-options trading on a registered options market in the United States; |
| · | the issuer of the security generally may not currently be in bankruptcy proceedings; |
| · | each security must have a minimum average daily trading volume of 200,000 shares (measured over the three calendar months ending with the month that includes the reconstitution reference date); |
| · | the issuer of the security generally may not have entered into a definitive agreement or other arrangement that would make it ineligible for index inclusion and where the transaction is imminent as determined by the Nasdaq Index Management Committee; and |
| · | the security must have traded for at least three full calendar months, not including the month of initial listing, on an eligible exchange, which includes Nasdaq (Nasdaq Global Select Market, Nasdaq Global Market, or Nasdaq Capital Market), NYSE, NYSE American, or CBOE BZX. Eligibility is determined as of the constituent selection reference date and includes that month. A security that was added as a result of a spin-off will be exempt from the seasoning requirement. |
Index Calculation.
The Nasdaq-100® Technology Sector IndexSM is calculated without regard to ordinary dividends however it does reflect special dividends. The formula is as follows:
| PRt = | Index Market Valuet |
| PR Index Divisort |
where:
and:
“Index Security” shall mean a security that has been selected for membership in the Nasdaq-100® Technology Sector IndexSM, having met all applicable eligibility requirements.
n = Number of Index Securities in the Nasdaq-100® Technology Sector IndexSM.
qi = Number of shares of Index Security i applied in the Nasdaq-100® Technology Sector IndexSM. The number of shares can be based on any number of items which would be identified in each specific Index Methodology including total shares outstanding (TSO), application of free float, dividend yield, modification due to foreign ownership restrictions, modification due to capping etc. This can also be referred to as Index Shares.
pi = Price in quote currency of Index Security i. Depending on the time of the calculation, the price can be either of the following:
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Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
| (1) | The Start of Day (SOD) price which is the previous index calculation day’s (t-1) closing price for Index Security i adjusted for corporate action(s) occurring prior to market open on date t, if any, for the SOD calculation only; |
| (2) | The intraday price which reflects the current trading price received from the Index Exchange during the index calculation day; |
| (3) | The End of Day (EOD) price refers to the Last Sale Price; or |
| (4) | The Volume Weighted Average Price (VWAP) |
t = current index calculation day
t – 1 = previous index calculation day
Index Calendar.
The securities composing the Nasdaq-100® Technology Sector IndexSM are selected once annually each December. Securities currently within the Nasdaq-100® Technology Sector IndexSM must meet the eligibility criteria using market data through the end of October that year and total shares outstanding as of the end of November that year. Index reconstitutions are announced in early December and become effective after the close of trading on the third Friday in December.
The index is rebalanced on a quarterly basis in March, June, September and December. The index rebalance uses the Last Sale Price (“LSP”) of all Index securities as of the third Friday (February, May, August, and November, respectively). Index rebalance changes are announced in early March, June, September and December, and changes become effective after the close of trading on the third Friday in March, June, September and December.
Index Maintenance.
Deletion Policy. If at any time other than an index reconstitution, a component of the Nasdaq-100® Technology Sector IndexSM is removed from the Nasdaq-100 Index® for any reason, it is also removed from the Nasdaq-100® Technology Sector IndexSM at the same time.
This may include:
| · | listing on an ineligible index exchange; |
| · | a security is not classified under the Technology Subsector according to the ICB; |
| · | merger, acquisition, or other major corporate event that would otherwise adversely impact the integrity of the Index; |
| · | if a company is organized as a REIT; |
| · | if the issuer has an adjusted market capitalization below 0.10% of the aggregate adjusted market capitalization of the Nasdaq-100 Index® for two consecutive month-ends; or |
| · | if a security that was added to the Nasdaq-100 Index® as the result of a spin-off event has an adjusted market capitalization below 0.10% of the aggregate adjusted market capitalization of the Nasdaq-100 Index® at the end of its second day of regular way trading as a Nasdaq-100 Index® member. |
In the case of mergers and acquisitions, the effective date for the removal of an Index issuer or security will be largely event-based, with the goal to remove the issuer or security as soon as completion of the acquisition or merger has been deemed highly probable. Notable events include, but are not limited to, completion of various regulatory reviews, the conclusion of material lawsuits and/or shareholder and board approvals.
Securities that are added as a result of a spin-off may be deleted as soon as practicable after being added to the index. This may occur when Nasdaq determines that a security is ineligible for inclusion because of reasons such as ineligible exchange, security type, or industry. Securities that are added as a result of a spin-off may be maintained in the index until a later date and then removed, for example if a spin-off security has liquidity or market capitalization characteristics that diverge materially from the security eligibility criteria and could affect the integrity of the index.
Replacement Policy. When a component of the Nasdaq-100 Index® that is classified as Technology according to ICB is removed from the Nasdaq-100 Index®, it is also removed from the Nasdaq-100® Technology Sector IndexSM. As such, if the replacement company being added to the Nasdaq-100 Index® is classified as Technology according to ICB, it is added to the Nasdaq-100® Technology Sector IndexSM and will assume the weight of the removed company on the Index effective date.
When a component of the Nasdaq-100 Index® that is not classified as Technology according to ICB is removed and the replacement company being added to the Nasdaq-100 Index® is classified as Technology according to ICB, the replacement company is considered for addition to the Nasdaq-100® Technology Sector IndexSM at the next quarterly Rebalance.
When a component of the Nasdaq-100 Index® that is classified as Technology according to ICB is removed from the Nasdaq-100 Index® and the replacement company being added to the Nasdaq-100 Index® is not classified as Technology according to ICB, the company is removed from the Nasdaq-100® Technology Sector IndexSM and the divisor of the Nasdaq-100® Technology Sector IndexSM is adjusted to ensure Index continuity.
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Morgan Stanley Finance LLC
Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the Lowest Performing of the Nasdaq-100® Technology Sector IndexSM, the Dow Jones Industrial AverageSM and the Russell 2000® Index due June 24, 2027
Additions Policy. If a security is added to the Nasdaq-100 Index® for any reason, it may be added to the Nasdaq-100® Technology Sector IndexSM at the same time.
Corporate Actions. In the periods between scheduled index reconstitution and rebalancing events, individual Index securities may be the subject to a variety of corporate actions and events that require maintenance and adjustments to the Nasdaq-100® Technology Sector IndexSM.
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The securities are not sponsored, endorsed, sold or promoted by Nasdaq (including its affiliates) (Nasdaq, with its affiliates, are referred to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the securities. The Corporations make no representation or warranty, express or implied, to the holders of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly, or the ability of the Nasdaq-100 Index® to track general stock market performance. The Nasdaq-100 Index® is determined, composed and calculated by Nasdaq without regard to us or the securities. Nasdaq has no obligation to take our needs or the needs of the owners of the securities into consideration in determining, composing or calculating the Nasdaq-100 Index®. The Corporations are not responsible for and have not participated in the determination of the timing, prices, or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the securities.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ-100® TECHNOLOGY SECTOR INDEXSM, NASDAQ-100 INDEX® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100® TECHNOLOGY SECTOR INDEXSM, NASDAQ-100 INDEX® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX® OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
“Nasdaq®,” “Nasdaq-100®” and “Nasdaq-100 Index®” are trademarks of Nasdaq.
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